Mortgage help

[Almost There 2021]

I recently spoke with two mortgage professionals at two highly regarded banks. The reason for this discussion was to find out how much of a mortgage I can get approved for. I was very disappointed to learn that I would not be approved because of income requirements. (Federal Standards)

I am retired so to speak but have been blessed with very good returns on my investments. Currently can show assets in the seven digit range and full ownership of primary residence of 6-700K. Issue at hand is most of my assets are in an IRA and the taxes would be excessive. There are other reason but the taxes are primary.

The question here is do I have any other financing options or am I forced to take my pension, SS and IRA withdraws early to be approved.

Would like some sound advice from the "family".

Thanks in advance.

 

[pb4uski]

Some lenders will consider your assets in deciding... there is a formula that haircuts the assets and then takes a certain percentage.

You mention taxes... what shows up as income on your 2020 tax return?

I've also heard that some lenders will count repetitive IRA withdrawals as income... so the borrower arranges a monthly IRA withdrawal for a few months to establish a pattern, gets the loan and then stops the withdrawals.

 

[euro]

Have you explored a HELOC on your primary?
I'm assuming you are looking for a mortgage to buy a second residence, vacation home, investment property, etc? All those are higher risk than primary residences, so banks have higher requirements. The may be willing to lend on the primary though (cash-out financing or HELOC). Keep talking to lenders (and or use a mortgage broker) - the major banks are usually the lest flexible - smaller, local banks, Credit Unions, etc tend to be more flexible. There is a product out there for almost all situations - you just have to find it.

 

[RetireBy90]

I would suggest you check with a couple local credit unions. They tend to keep more loans rather then sell to feds. If they keep a loan, not limited by the Fanny/Freddy rules.

 

[Franklin]

Almost there....i've been there. Some advise that i learned. Use your banker (assuming u have one) or get a mortgage broker (they know how to work the system.) In my case I didn't need the mortgage but was pulled into the discussion because of a 2.5% rate. Here is what I did.

1) Showed the bank i could write a check to pay the loan off (my bank held those funds) and 2) showed them how I could make the payments for the next 3 years. (apparently that was their underwriting standard.). I was very clear with them that I would draw on available cash to fund the next 3 years. Now, I provided a solid FICO score and low LTV so it was sort of a no brainer but hay....banks have some quirky rules.

While I have a personal banker I also keep ties with several mortgage brokers Ive used in the past. The sad part is most banks don't understand a persons income unless that have a pay check or clear source of income. The look on their face when you say "i pay myself" is sorta funny. So, your banker or broker can make the translation easier. Good luck.

 

[jazz4cash]

It’s amazing how professionals in the mortgage business don’t know how things work. The term I hear most frequently is “asset depletion loan”. It takes retirement funds like IRA accounts if you are eligible to take distributions and estimates an income stream.

https://www.wsj.com/articles/no-pay...ntional-mortgages-make-a-comeback-11548239400

 

[Sunset]

...

I am retired so to speak but have been blessed with very good returns on my investments. ....
The question here is do I have any other financing options or am I forced to take my pension, SS and IRA withdraws early to be approved.

...

If you are retired, and not collecting pension, SS.
I'm wondering why you are not doing Roth Conversions to reduce your IRA tax torpedo at age 72 ?

 

[pb4uski]

Good blog post on the topic. https://blog.massmutual.com/post/ho...crease qualifying,, or self-employment income.

Suppose John has $1,000,000 in his 401(k) and he has not touched it. He is not yet 70½, the age at which the IRS requires account owners to start taking required minimum distributions from 401(k)s. He is living off Social Security and the income from a Roth IRA.

A lender could use 70 percent of his 401(k) balance (to account for market swings that could lower the account’s value), or $700,000, minus his down payment (let’s call it $50,000) and closing costs (let’s say those are $20,000) to arrive at $630,000, an amount that he could be expected to use to gradually pay for his mortgage over the next 360 months, or 30 years. That would give him $1,750 a month to put toward a housing payment.

 

[Ian S]

Last year when we needed a mortgage to buy a home, we found a broker who knew the ins and outs of an asset depletion loan. Because almost all our assets were in IRAs, the broker worked out the monthly withdrawal amount we would have to set up to qualify for the mortgage. So we did that and started the withdrawals. Once the mortgage company saw the money showing up in our bank account for a couple of months, we were good to go. The trick is that you don't need to keep withdrawing once the loan has gone through and you have your house.

 

[jazz4cash]

Last year when we needed a mortgage to buy a home, we found a broker who knew the ins and outs of an asset depletion loan. Because almost all our assets were in IRAs, the broker worked out the monthly withdrawal amount we would have to set up to qualify for the mortgage. So we did that and started the withdrawals. Once the mortgage company saw the money showing up in our bank account for a couple of months, we were good to go. The trick is that you don't need to keep withdrawing once the loan has gone through and you have your house.

It was my understanding that a true mortgage depletion loan did not require the borrower to actually set up auto withdrawals. I thought most mortgage companies would accept a series of deposits as proof of income but the grey area is how they analyze if the payments are reliable (e.g. how big is your stash). The Fannie formula posted earlier standardizes the process and makes the loan eligible for to be bundled and sold.

 

[Letj]

I easily got a mortgage after I retired early by setting up a trust account in Vanguard and took a specific monthly withdrawal to qualify for the loan. I couldn’t qualify for asset depletion loan because I would have had to be at least 59.5.

 

[Ian S]

It was my understanding that a true mortgage depletion loan did not require the borrower to actually set up auto withdrawals. I thought most mortgage companies would accept a series of deposits as proof of income but the grey area is how they analyze if the payments are reliable (e.g. how big is your stash). The Fannie formula posted earlier standardizes the process and makes the loan eligible for to be bundled and sold.

We had to provide all our financial records so I assume the mortgage broker used them to determine what we could qualify for but we still had to set up automatic payments from an IRA and they wanted to see the deposits for a couple of months. Maybe it varies from lender to lender.

 

[JP.mpls]

Some lenders will consider your assets in deciding... there is a formula that haircuts the assets and then takes a certain percentage.

You mention taxes... what shows up as income on your 2020 tax return?

I've also heard that some lenders will count repetitive IRA withdrawals as income... so the borrower arranges a monthly IRA withdrawal for a few months to establish a pattern, gets the loan and then stops the withdrawals.

My lender counted consistent IRA monthly withdrawals as income.

They made me increase the amount of these withdrawals to increase my income.

JP

 

[Katsmeow]

IRA income can be counted as income. In my experience I was told that you needed to have at least one withdrawal from it before the underwriter looked at it and you should continue getting the withdrawals for a short period of months. Once that was done, though, you were free to stop the withdrawals if you didn't want to take them. You have to use an IRA that is big enough to cover I think 3 years of payments. Note -- they are not looking for an IRA big enough to cover 30 years of payments at a 4% withdrawal rate. They care about you being able to have enough assets in the IRA to cover 3 years of payments.

Another alternative is to do an asset depletion mortgage. That is not the same thing as a regular distribution that I described above. For asset depletion mortgages there is a formula.

Both of those are described in these Fannie Mae guidelines. If you can set up the IRA distribution that is easier than doing the asset depletion loan.

https://selling-guide.fanniemae.com...ces-of-Income-10-02-2019.htm?touchpoint=Guide

 

[samlrs]

IRA income can be counted as income. In my experience I was told that you needed to have at least one withdrawal from it before the underwriter looked at it and you should continue getting the withdrawals for a short period of months. Once that was done, though, you were free to stop the withdrawals if you didn't want to take them. You have to use an IRA that is big enough to cover I think 3 years of payments. Note -- they are not looking for an IRA big enough to cover 30 years of payments at a 4% withdrawal rate. They care about you being able to have enough assets in the IRA to cover 3 years of payments.

Another alternative is to do an asset depletion mortgage. That is not the same thing as a regular distribution that I described above. For asset depletion mortgages there is a formula.

Both of those are described in these Fannie Mae guidelines. If you can set up the IRA distribution that is easier than doing the asset depletion loan.

https://selling-guide.fanniemae.com...ces-of-Income-10-02-2019.htm?touchpoint=Guide

Ss far as I know withdrawals from IRAs are taxable income and Social Security benefits can be taxable. Whether you actually owe taxes and how much depends on a number of things. If Social Security is truly your only income in 2020, your Social Security payments should be tax free and you may not owe any taxes on the IRA either. I'll start with the IRA.

 

[Koolau]

Some lenders will consider your assets in deciding... there is a formula that haircuts the assets and then takes a certain percentage.

You mention taxes... what shows up as income on your 2020 tax return?

I've also heard that some lenders will count repetitive IRA withdrawals as income... so the borrower arranges a monthly IRA withdrawal for a few months to establish a pattern, gets the loan and then stops the withdrawals.

Our last mortgage happened right after the unpleasantness which caused the Feds to tighten the rules. The banks said we didn't have enough income - until they looked at our taxes. Turns out that making Roth conversions counted as income 'cause it was on our 1040 as income. Made no sense to me. I could have "shown income" by withdrawing money and spending it on wine, women, song and wasting the rest. (Bank confirmed this. They could care less as long as the Feds were satisfied. Didn't have to make sense to me, them or the lamp post.) YMMV

 

[pb4uski]

Our last mortgage happened right after the unpleasantness which caused the Feds to tighten the rules. The banks said we didn't have enough income - until they looked at our taxes. Turns out that making Roth conversions counted as income 'cause it was on our 1040 as income. Made no sense to me. I could have "shown income" by withdrawing money and spending it on wine, women, song and wasting the rest. (Bank confirmed this. They could care less as long as the Feds were satisfied. Didn't have to make sense to me, them or the lamp post.) YMMV

Yes, their primary concern is dotting i's and crossing t's so the mortgage qualifies to be sold since they no longer keep them... they just get a commission for originating them.

I asked my loan officer sister about the Roth conversion thing and she confirmed that if it shows up on the tax return then it counts... even though it is just moving money from one pocket to the other.

 

[Bamaman]

After 2008, the Feds went crazy on loan documentation and regulations. They went from operating with zero common sense (prior to 2008) to zero common sense with their excessive regulations.

Banks and financial institutions now have to prove why they don't reject an application--rather than why they accepted it. And most are not apt to break the income/payment ratios established.

If an applicant can prove he has the funds to pay for a loan (and a good FICO score), there's no reason not to be approved on any loan. It should be 100% APPROVAL.

 

[Almost There 2021]

Withdrawing money from an IRA or a ROTH conversion will incur substantial taxes which is the primary reason for wanting a mortgage. Also, the interest is written off at year end.

 

[Koolau]

Yes, their primary concern is dotting i's and crossing t's so the mortgage qualifies to be sold since they no longer keep them... they just get a commission for originating them.

I asked my loan officer sister about the Roth conversion thing and she confirmed that if it shows up on the tax return then it counts... even though it is just moving money from one pocket to the other.

Short story (I promise): IIRC my credit score at the time was 815. During talks with the bank, trying to get our last mortgage (and being told we didn't have enough income) I walked out of the loan officer's office to keep from losing my cool. When I had regained my composure, I walked back into the front entrance of the bank. Right there on the front glass door was a huge sign to the effect: "Bad credit? No credit? We can get you approved!" I stormed back into the loan officer's office and DID lose it. YMMV

 

[Retired Expat]

Where do you hold your investments? Some Firms are brokerage houses with banking relations. Using my investment portfolio as proof of funds, my Broker arranged a low rate mortgage. Then this year they were offering loans at 1.25% with no fees or closing costs for 1 year or 1.9% for 5 years. Took the 3 year option and paid off the mortgage saving quite a bit by simply kicking the can down the road. Still making the same mortgage and interest payment but into one of my investment accounts with the idea to apply the "savings" should i choose to take out another mortgage or loan when the time comes. Or Likely will have sold some other property by then.

I found that consolidating my assets and going with a full service firm actually got me low rates and lots of perks and support for other things. free Tax advice, referral to an estate attorney who saved me at least a million in taxes on my father's assets when he died, and my father had used an estate attorney to set everything up!!! Just foolishly... So it is not just about the lowest fees. My guys don't churn my accounts and anyway don't make a dime on trades. They get a low management fee and most importantly I sleep like a baby!!!

I know 2 people who had their FA rip them off for a lot of money so nice to know I am insured and protect from that....