Asset based mortgage

[Willers]

We are in the process of selling our current home and will be looking for a new one.

When we bought our current home, I contacted a couple of local mortgage brokers to inquire about mortgage options and they looked at me like I had two heads when I asked about this since we have no W2 income. Assets but no job? No go.

I'm interested in looking into a mortgage on our next home. Has anyone out there had any recent experience with getting a mortgage based on your assets? Do I need to work with large banks? Have you seen any interest rate differences?

Thanks for any help you can provide!

Willers

 

[harley]

We've had the same problem multiple times, both with purchases and refis. I've heard of asset based mortgages, but never found a lender that would do one. Since we FIREd at 50, too young to get SS or withdraw from IRAs, we were pretty much screwed. We ended up buying a couple of rentals to create a cash flow. That combined with a small business we started were enough to create a semi-respectable income. Enough that they would at least talk to us and look at our other assets.

So sadly, I don't have any good advice for you. If you're old enough for SS and/or IRA withdrawals, that would probably do it. Otherwise you'll just have to find an understanding lender, if any such exist.

 

[pb4uski]

I've heard from other posters that some banks will look at regularly scheduled tIRA withdrawals to your bank account as income.... I'm sure that others who have more direct experience with the issue will be along shortly.

 

[Koolau]

I wouldn't say "recent" as our mortgage was in 2010. Assets were a "no go" then as well. It turned out that we DID have income since the IRS said we did. We'd converted some tIRA assets to ROTH IRAs and had to pay taxes on the conversions. Even though we ended up with less actual money (you take the taxes - hopefully - from your "cash.") SO, we did get the mortgage. Otherwise, you have to find a way to cash in your assets and pay cash. We had just assumed that you could "pledge" your assets, but apparently not. YMMV

 

[pb4uski]

I wonder if one had a regular automatic monthly Roth conversions if that would qualify as income in the eyes of the bank... while we all know it is just moving money from one pocket to another it does show up as pension income on your tax return.

 

[Ian S]

We did an asset based mortgage in 2019 through a broker who was knowledgeable about such loans. Because most of our net worth was tied up in TIRA's, he calculated a monthly withdrawal which we maintained for only a couple of months to satisfy the lender. Once we got the loan and closed on the property, we stopped the withdrawals. You need to find a broker who is familiar with such loans. As far as I could tell, we got a competitive rate and terms.

 

[karen1972]

https://guide.freddiemac.com/app/guide/section/5307.1 Most the banks/CU I talked to use these rules and depending on age/ where invested, it may disqualify a lot of your assets since the rule is if there is a penalty for withdrawal which it didn't seem to matter there isn't since I had enough Roth conversions, all they cared was I wasn't 59.5.

Angle Oaks is a big private lender that does them based on their own rules but expect to pay up 2% which there is some leniency if you do a bigger down payment improving LTV. I hope there are better ones out there but thats the only one I had experience with and everyone I knew bit the bullet and went there too. They were willing to lend me more than even I was comfortable taking out.

Pensions/SS/regular fixed distributions from retirement should be good, everything else most underwriters won't touch as its just easier for them to use Freddi/Fannies rules. Though I will say given my age, even my pension seemed to cause them grief.

My honey went back and got a full time contract gig, just enough to meet conventional mortgage rules so we could refinance out of those rates this year. Still worth the 2 years we used Angle Oaks as we got the home we wanted and luckily just temporary pain point but hey at least they were willing to lend as it would have been way more painful paying taxes to pull it out of the market to pay cash. Good Luck.

 

[Ian S]

I wonder if one had a regular automatic monthly Roth conversions if that would qualify as income in the eyes of the bank... while we all know it is just moving money from one pocket to another it does show up as pension income on your tax return.

That's a good question. When we did our mortgage (2019) based on monthly TIRA withdrawals, the lender wanted to see the money show up in our bank account statement.

 

[Willers]

Thanks for the advice. I have a ton in taxable right now so I wonder if I could manufacture "income" into my checking account by doing an automated withdrawal from my Ally account rather than generating more taxable income from my IRA.

Has anyone know of any banks that they think might be more open to this?

 

[Koolau]

That's a good question. When we did our mortgage (2019) based on monthly TIRA withdrawals, the lender wanted to see the money show up in our bank account statement.

Our lender ONLY went by the income shown on our 1040. Could have cared less what "actually" happened to the money. If the FEDs said it was "income" that was good enough for the lender. YMMV as always.

 

[Katsmeow]

Thanks for the advice. I have a ton in taxable right now so I wonder if I could manufacture "income" into my checking account by doing an automated withdrawal from my Ally account rather than generating more taxable income from my IRA.

Has anyone know of any banks that they think might be more open to this?

If you are old enough to withdraw from your IRA getting a mortgage should be an issue. You set up a monthly withdrawal from your IRA big enough to give you the needed income. I was told that the IRA simply has to have enough money in it to cover 3 years of withdrawals.

The crucial thing I was told is that you don't have to keep the monthly IRA withdrawals forever. After awhile you can discontinue them or change them. I actually do have the monthly withdrawals on my IRA at this time, but I was told that I could stop them if I wanted to or could change them. I mean that makes sense. Stuff can change over the lifetime of a mortgage.

 

[harley]

If I was going to do the IRA thing and incur the tax hit for a few months, I'd do them as Roth conversions. Might as well accomplish something positive while gaming the system.

 

[Wishing]

I tried to go through Wells Fargo for a mortgage last year - I got tired of all of the hoops the underwriter insisted I jump through. I contacted my local bank and secured a mortgage loan within two weeks. Unfortunately, I’m going through the same thing this year. Wells Fargo gave me a pre-qual letter, but the realtor I’m working with was worried that Wells Fargo wouldn’t come through quickly enough. I concurred and went with a local bank again - had my loan approval within a week. Just hoping the house appraises appropriately - the housing market is insane. My current house sold within a couple of days at a highly inflated price.

 

[pb4uski]

Thanks for the advice. I have a ton in taxable right now so I wonder if I could manufacture "income" into my checking account by doing an automated withdrawal from my Ally account rather than generating more taxable income from my IRA.

Has anyone know of any banks that they think might be more open to this?

I don't think so... that is just a transfer... not income... doesn't result in income on your tax return.

 

[harley]

I tried to go through Wells Fargo for a mortgage last year - I got tired of all of the hoops the underwriter insisted I jump through. I contacted my local bank and secured a mortgage loan within two weeks. Unfortunately, I’m going through the same thing this year. Wells Fargo gave me a pre-qual letter, but the realtor I’m working with was worried that Wells Fargo wouldn’t come through quickly enough. I concurred and went with a local bank again - had my loan approval within a week. Just hoping the house appraises appropriately - the housing market is insane. My current house sold within a couple of days at a highly inflated price.

Did your local bank do an Assets Only mortgage? Or do you have income? I think it's pretty unusual to find a bank that will di it just based on assets.

 

[daylatedollarshort]

Penfed told me they only looked at annual income on your taxes. If you have enough gross income from each of the last two years on your tax forms to meet their qualifying ratios you should be okay with them.

All the lenders on the Costco mortgage program I contacted told me they would accept automatic transfers from retirement accounts as long as you show them the set up form and at least one transfer being deposited into your checking. We refinanced recently with NBKC this way. I was also told Finance of America (through lending.com), NASB and Strong Mortgage will look at monthly transfers as well. Fidelity has an online form to set up regular distributions from IRAs. If takes a few days advance set up and then you can cancel it once your loan goes through, so you really only have to do one transfer to get the loan.

In my experience most of the Costco mortgage lenders are on the up and up, though some individual loan officers might be a bit sketch or inexperienced. Be careful with the lenders who advertise significantly lower rates than the pack, like certain ones on Credit Karma. Those rates may not be real and they are just counting on either rates going down or people not wanting to start over even after they find out their "lock" wasn't real.

We're on our second refinance this year using retirement assets as a part of our qualifying income. We refinance with a no point, no cost loan every time rates go down. Even a $20 a month payment drop is $7.2K over the life of a 30 year loan.

 

[lauradrops]

We had the same issue in 2012. We were too young to touch TIRAs, and being newly retired had no way to show enough income. We wound up setting up 2 $500 72Ts to show an income stream. We made them just enough to qualify for the mortgage and then cancelled one right after closing, can't really remember why it was recommended (required?) we keep one.

 

[Willers]

I don't think so... that is just a transfer... not income... doesn't result in income on your tax return.

Yeah, I figured that might be true.

 

[Out of Steam]

We refinanced earlier this year, and once the bank saw that we met their maximum loan to income ratio based on my pension alone, they were no longer interested in documentation of our retirement account assets and draws--even though those draws made up about 40% of our income at the time.

 

[jazz4cash]

It seems that most of the proposed solutions require establishing an income from your assets. That’s not an asset based loan IMO. As I read the requirements on Fannie Mae site, no actual distribution is required. It’s a calculation that allows you to use about 2.5% of your assets as “income” to qualify for a loan. I inquired about one of these at the credit union and the “loan officer” said sure but clearly had no idea of what I was talking about. My conclusion is that a broker or mortgage company that specializes in these products is necessary. Having the blessing of Fannie and Freddie should make it routine but it doesn’t seem to work that way.

 

[gauss]

We had the same issue in 2012. We were too young to touch TIRAs, and being newly retired had no way to show enough income. We wound up setting up 2 $500 72Ts to show an income stream. We made them just enough to qualify for the mortgage and then cancelled one right after closing, can't really remember why it was recommended (required?) we keep one.

So did you need to pay the 10% early-distribution penalty on all the 72(t) distributions after cancelling?

My understanding is that if you execute a 72(t) plan you need to run in it for a minimum of 5 years -- maybe more if you are more than 5 years out from age 59 1/2 at the time you start it -- in order to not "default" on a 72(t) plan.

 

[pb4uski]

^^^ Yes, there seems to be a sizeable gap between what the documents seem to suggest is required (based on a % assets with a healthy haircut as I recall) and practice of requiring some "income".

While it is a bit of a joke that you can stop the transfers after the loan is funded, likewise you could always lose you job or quit right after funding. In fact, when I did my last refinance I had already resigned but was still on payroll so the employment verification just prior to funding the loan went smoothly.

 

[Ian S]

Our lender ONLY went by the income shown on our 1040. Could have cared less what "actually" happened to the money. If the FEDs said it was "income" that was good enough for the lender. YMMV as always.

The problem arises when you don't have the 1040 history of such transactions and you have to start a monthly withdrawal from a TIRA of an amount sufficient to satisfy the lender. It was only for a couple of months for us.

 

[Reach]

https://guide.freddiemac.com/app/guide/section/5307.1 Most the banks/CU I talked to use these rules and depending on age/ where invested, it may disqualify a lot of your assets since the rule is if there is a penalty for withdrawal which it didn't seem to matter there isn't since I had enough Roth conversions, all they cared was I wasn't 59.5.

Angle Oaks is a big private lender that does them based on their own rules but expect to pay up 2% which there is some leniency if you do a bigger down payment improving LTV. I hope there are better ones out there but thats the only one I had experience with and everyone I knew bit the bullet and went there too. They were willing to lend me more than even I was comfortable taking out.

Pensions/SS/regular fixed distributions from retirement should be good, everything else most underwriters won't touch as its just easier for them to use Freddi/Fannies rules. Though I will say given my age, even my pension seemed to cause them grief.

My honey went back and got a full time contract gig, just enough to meet conventional mortgage rules so we could refinance out of those rates this year. Still worth the 2 years we used Angle Oaks as we got the home we wanted and luckily just temporary pain point but hey at least they were willing to lend as it would have been way more painful paying taxes to pull it out of the market to pay cash. Good Luck.

Interesting link.

I saw, as you stated, that "Retirement Assets" won't qualify if you are under 59.5 yrs old, since you are subject to a penalty for withdrawal.

Then there is the section on taxable assets :"Depository accounts and Securities ", which have a requirement that at least one borrower must be 62 yrs old! I wonder about the rationale for that requirement??

So if you are RE under 59.5 yrs old and looking for a mortgage, seems like the only option would be to set up some type of income stream, based on everyone's experience shared (or pay cash!).

 

[mboley]

Im retired and just secured a $214K loan to buy my daughter a house. I also have a mortgage on my house. I had read it would be difficult to get a loan and was really concerned whether I would be able to get a loan even though I have about 2.5 million net worth. Ive been retired for 6 years, 61 now but havent taken any money out of my IRA account yet, but I have rental income. However that only shows as $65K on my tax return.

Chase wouldnt touch me but I did find a smaller company that would. They liked that I was taking $3300 per month systemically from savings even though it wasnt an ira or 401k and they did count the depreciation on my rental property as income. An 800 credit score also helped.

The formula for counting your portfolio value, as I understand it, using a 1 million as an example is 1000000× 70%÷360 on a 30 year mortgage. So your million dollar portfolio only counts for $1944 per month as income.