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Obtaining a Mortgage Post-Retirement
Old 03-07-2008, 11:28 AM   #1
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Obtaining a Mortgage Post-Retirement

When in the working world, mortgage companies have salaries to consider along with credit ratings, other debts, etc. Post-Retirement, how do they go about their evaluations? Credit ratings and debts should be the same, but the income streams are completely different. How do they decide what is acceptable?
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Old 03-07-2008, 11:36 AM   #2
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I would think if you have 1099-Rs from a previous year, together with current statements from your banks, brokers and fund companies showing your assets, you can give a good picture of your assets and your pension income stream. I would think they could reasonably assume that someone with $1M in assets could easily be counted on for a $30-40K annual income stream in addition to pensions and other guaranteed income streams.

Also, SSA-1099s for people collecting Social Security could also help document income. I would think pensions and SS income would be seen as more reliable than W-2 or earned 1099 income, provided it's sufficient together with one's other assets.
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Old 03-07-2008, 03:33 PM   #3
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When in the working world, mortgage companies have salaries to consider along with credit ratings, other debts, etc. Post-Retirement, how do they go about their evaluations? Credit ratings and debts should be the same, but the income streams are completely different. How do they decide what is acceptable?
I can't directly answer your question, but I've had a bit of experiencing exploring that issue.

When I moved to my present home (in VT) from MD, I wanted to sell my house in MD and pay cash for my home in VT. But, I needed a Plan B in case the MD house didn't sell in time. I did a preliminary application with my credit union (from which I had had 3 mortgages in the past and a flawless payment record.) I was surprised how little they would lend me relative to what I wanted. I believe they were strictly considering my Navy pension but excluding my stock/bond portfolio since the Navy pension is pretty solid but the portfolio could theoretically tank at any time. Someone on the Motley Fool put me on to the Charles Schwab Bank; I applied there and got preliminary approval for a significantly higher loan. But I needed neither since the MD house sold in time.

So my conclusion is that most credit unions/banks look at "guaranteed" income but give little or no weight to financial assets.
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Old 03-07-2008, 03:45 PM   #4
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What job is guaranteed? That thinking doesn't make sense to me. Someone who has a good deal of money in paper verse someone who is potentially going to earn money from a job.
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Old 03-07-2008, 05:39 PM   #5
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When in the working world, mortgage companies have salaries to consider along with credit ratings, other debts, etc. Post-Retirement, how do they go about their evaluations? Credit ratings and debts should be the same, but the income streams are completely different. How do they decide what is acceptable?

I think that lenders are shy with retiree's because some State laws prevent them from getting their hands on your pension and IRA if you default. They will write a mortgage but probably at a somewhat higher rate.
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Old 03-07-2008, 05:48 PM   #6
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How do they decide what is acceptable?
Mortgage underwriting in the United States - Wikipedia, the free encyclopedia

people that receive income via cash investments must provide statements and determine the continuance of the income from those payments. In short, the underwriter must determine and document that the income and employment is stable enough to pay the mortgage in years to come.

For me, they asked for my last two tax returns and last two bank/brokerage statements. Pretty painless.
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Old 03-08-2008, 04:03 AM   #7
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Thanks for the feedback. It sounds like there is more flexibility and variability than I had imagined. I had always thought mortgages were pretty strictly formula driven.
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Old 03-08-2008, 09:45 AM   #8
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For me, they asked for my last two tax returns and last two bank/brokerage statements. Pretty painless.
Did the same thing triing to re-fi a HELOC (1 point cheaper) ... problem was the rental income I showed was dilluted with rental deductions (cell phone, internet, ...). All perfectly legal deductions ... but it made my "income" too low for the refi.

Credit report was no problem (DW and I average over 750). What's interesting is that was the first mortgage rejection I ever received.
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Old 03-08-2008, 04:53 PM   #9
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While I don't have any personal experience in it - or know anyone that has done it - I believe some of the rip off artists full service brokers might offer some sort of wrap account where you can 'pledge' your investment portfolio as part/all of the mortgage amount, and then take the mortgage through them. You might pay 1/2%-1% in a wrap fee, but if the rate's competitive and you have no other option, it's something that might be considered.
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Old 03-14-2008, 05:20 AM   #10
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I talked to my representative at the bank. This is what she recommended:
  1. Pre-qualify for a mortgage while still in the workforce. They didn't seem concerned at all, even with full knowledge that the situation would be changing. [No wonder the mortgage industry is in the tank!?!] I didn't try to get specific on how far I could push the timing on this, as I am only doing some advance planning at this time
  2. Once out of the workforce, they would look at social security, pension, and investment income. For the investment income they would want a "written statement from a planner with reasonable assumptions supporting the income stream". They would then use this in the same manner as they would earned income. I didn't interpret this as something formal, notarized, or anything like that - simply wanting to have an understanding that there is a sufficient [planned] income stream
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Old 03-14-2008, 07:29 PM   #11
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I'm "in the workforce" for five more months but have already secured a mortgage for my retirement home (under construction). The mortgage company simply wanted proof that I had enough assets to pay it off if I needed to. They ignored my present job and even the part-time one that I will continue when I leave the full-time position.
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Old 03-15-2008, 10:26 AM   #12
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I FIRE'ed in laye 2006. Got a new "one closing" construction loan/1st mortgage from Wachovia 2 weeks before I retired, based on my salary---and they knew I was retiring because I had told them so.

About a year later I refi'd. Not yet collecting SS, but have a small pension which just barely covers the mortgage but that's all. The rest of my income is dividends and whatever I choose to withdraw from my investment accounts. They wouldn't accept "whatever I want it to be" as my income (quelle surpris!). Naturally I didn't want to go stated income, since the rates were much higher. And nowadays stated income is impossible.

So I decided what I wanted my total income to be, and told them I took a $5000 monthly draw from one of my brokerage accounts. They would accept that---as long as I could show/prove sufficient assets in the account to fund the draw for at least 3 years. No problem. But then they said, Oops, that's a joint account and since your wife isn't on the note it needs to be from an individual account. Fine, so use the individual account. All went ok then and got approval.

But at the last minute the underwriter objected and said, Hey you can decide to stop or reduce your monthly draw at any time. Like, DUH!!! Instead, they wanted the draw to come from a retirement account (IRA/401k). Oddly enough, they wanted to see "retirement income" to come from a retirement account rather than an ordinary account. Guess the underwriter didn't realize that money is fungible. But---anything to please you, sir!

Okay, fine, I called my IRA broker and had them set up a fixed monthly draw on the IRA, and send me a letter acknowledging this so I could fax it to the lender. Also told him that I would probably cancel it as soon as the mortgage closed. This made the underwriter happy, and got their blessing.

Then the next day the boss underwriter wanted to see proof that I was actually taking the draw. WTF?? So I had to download & send them my past checking account statement which showed an ACH transfer of the $5000 draw. Which was coming from my joint brikerage account all along. That cleared everything and we closed.

They didn't want to see my W-2 or 1040, because those reflected my pre-retirement situation and was meaningless after retirement. Good for them.

BTW, all this took only 2 1/2 weeks---app to closing. Very fast!

The check from the IRA came the next week, and I called the broker and told them I wanted to roll it back into the IRA. They said, No problem we'll just cancel the transaction and it'll be like it never happened. Oh, and I told them to cancel the monthly draw form the IRA.

Five months ago (December 2007--when the subprime mortgage mess was in a full boil) I refi'd again--different lender, though. I told them the situation, told them that I had done this exact same thing less than a year ago, and send them the documentation & "confirmation of your instructions of monthly withdrawal" letter from the IRA. Sailed through smooth as silk. I just got 1 call from the loan processor, left a message on my answering machine, "I don't see that you have enough income." Followed a little bit later by another one, "Never mind, I see the letter from your IRA."

This one, I made the app on Dec 3 and we closed on Dec 28. And I was on a cruise and out of the country and out of communications from Dec 10 to Dec 20.
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Old 03-15-2008, 01:06 PM   #13
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I'm "in the workforce" for five more months but have already secured a mortgage for my retirement home (under construction). The mortgage company simply wanted proof that I had enough assets to pay it off if I needed to. They ignored my present job and even the part-time one that I will continue when I leave the full-time position.
Thus lending credence to the old saying that banks are in business to lend to people who can prove they don't need the loan.

Seems like the subprime stuff made that old definition obsolete, but I have a feeling that it may be making a comeback.
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RIP to Reemy, my avatar dog (2003 - 9/16/2017)
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