Asset based mortgage

[athena53]

It definitely looks like it's key to find a broker who knows about these loans.

I retired at 61; DH was 15 years older and already retired. One year later we decided to downsize. We had $2.5 million in investments. We didn't have a regular draw- I knew what annual amount was sustainable but took out what we needed every 4 months or so and it varied. I prepared a nice exhibit showing the balances in all 4 of our accounts (checking and 3 brokerage) together with the total, by month, since retirement. The total had gone up by $100K since my retirement. We wanted to borrow $150K on a house we were buying for $258K.

I guess my exhibits didn't fit into their nice little boxes. I swear they ignored the assets and fixated on DH's SS and my $900/month pension. We got $100K.

Just last month the same company offered a refinance of my $67K balance plus $100K cash-out for "only" $156/month more. Whatta deal! Except that the interest rate will now be 4.5% instead of my current 3% and instead of being paid off in 9 years the mortgage will be paid off in 30 year. When I'm 98.

 

[ERD50]

For those of us delaying SS until 70,72, (75 on the table?), I wonder if showing you *could* take the current SS amount would qualify, even if you aren't taking it. I'm also delaying my pension for the same reason (mostly to give more years to do Roth conversions).

Seems those should count, as they are available, but I'm guessing the loan makers want to see the actual cash flow?

-ERD50

 

[FlaGator]

I've done it 3 times - a purchase in 2016, refi in late 2019 and a refi in the last 90 days.

Purchase loan was through Wells Fargo (I've been a customer since the mid-80's) and the refis through Quicken Loans's affinity relationship with Schwab.

All were easy.

 

[harley]

For those of us delaying SS until 70,72, (75 on the table?), I wonder if showing you *could* take the current SS amount would qualify, even if you aren't taking it. I'm also delaying my pension for the same reason (mostly to give more years to do Roth conversions).

Seems those should count, as they are available, but I'm guessing the loan makers want to see the actual cash flow?

-ERD50

Your guess is correct. They require the actual cash flow.

It seems a few people on this thread managed to find lenders that would do real asset based loans. I never could, so good on them. I don't understand why it is so hard to find someone to do this. I guess being young and retired and FI is even more unusual than I thought it was.

 

[Which Roger]

Your guess is correct. They require the actual cash flow.

It seems a few people on this thread managed to find lenders that would do real asset based loans. I never could, so good on them. I don't understand why it is so hard to find someone to do this. I guess being young and retired and FI is even more unusual than I thought it was.

I've always assumed that, although asset-based mortgages are very safe for a lender, there's not enough demand for them to bother setting up the processes, rules, software, etc.
Being young and retired and FI is fairly unusual, and only a subset of that group are buying real estate, and a significant subset of that subset is paying cash. Thus a low demand for asset-based mortgages.

 

[daylatedollarshort]

For those of us delaying SS until 70,72, (75 on the table?), I wonder if showing you *could* take the current SS amount would qualify, even if you aren't taking it. I'm also delaying my pension for the same reason (mostly to give more years to do Roth conversions).

Seems those should count, as they are available, but I'm guessing the loan makers want to see the actual cash flow?

-ERD50

When I asked in the past, I was told SS would not count as income if you were not collecting. A salary from GameStop would, though!

 

[daylatedollarshort]

Your guess is correct. They require the actual cash flow.

It seems a few people on this thread managed to find lenders that would do real asset based loans. I never could, so good on them. I don't understand why it is so hard to find someone to do this. I guess being young and retired and FI is even more unusual than I thought it was.

If you can do automatic transfers from retirement accounts, most of the lenders in the Costco mortgage program seem to accept those transfers as income.

 

[karen1972]

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!).

Yes those rules were set up specifically for traditional retirees 59.5 and older, Fannie/Freddie rules don't like anything non-traditional.

As I mentioned there are true Asset Based Mortgage you can get one, but you will likely have significantly higher interest rates to make it worth the private lenders to lend. (Angel Oak Home Loans was the only one I could find 2 years ago in my area).

They just asked for my Vanguard statement which holds 95% of my invested assets, they took 30% off the top, then subtracted out 5 years of payments and if I had $500k or more left over I was qualified. They didn't care if it was in a tIRA/Roth or taxable or how I was getting the money out, or that I didn't have an income stream, just that it existed in my name and figured if I had that much money I could figure out how to access it to pay my bills.

It was painful to pay more in interest but far less painful than creating a forced tax event to pay cash or be trapped in a 72t for 14+ years. If I had been mid 50s, I might have just done the 72t but not in my mid 40s.

 

[marko]

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.

This was exactly our experience. We ended up paying cash because an 850 credit score, several mil earning interest and no debt wasn't good enough. What we didn't have was "regular, formal and scheduled" withdrawals; we'd only withdraw when the checking account got low.

 

[jazz4cash]

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!).

I could not open the link. The Fannie Mae version says you must deduct the 10% penalty before calculating the amount available to qualify. Maybe the conflicting guidelines are too goofy for lenders to be comfortable. Halfway down the page the guidelines are buried under the odd title “Employment-Related Assets as Qualifying Income”

https://selling-guide.fanniemae.com...3-1-09-Other-Sources-of-Income-12-16-2020.htm

 

[Willers]

I've always assumed that, although asset-based mortgages are very safe for a lender, there's not enough demand for them to bother setting up the processes, rules, software, etc.
Being young and retired and FI is fairly unusual, and only a subset of that group are buying real estate, and a significant subset of that subset is paying cash. Thus a low demand for asset-based mortgages.

This may be the reason they are so hard to find. We’re just not worth the time to process exceptions. Too bad. Asset loans to those like on this board would likely be the safest they would ever make.

 

[FlaGator]

Reaching back into my mortgage origination experience from a few decades ago and being a vendor to those companies for many subsequent years.

If it's in the FNMA/FHLMC guidelines, there is a way, but......

The mortgage origination process is an assembly line. The more it fits with a standard and common process (and "typical" underwrting guidelines), the easier it is. While policies exist for asset-based loans, they are more the exception than the rule. Hence, the average lender has no experience, and will pass on the application due to lack of experience or unwillingness to invest the time to get a good loan through a system used to standardized processes.

My experience with Wells and Quicken involved people familiar with alternate approval methods-they understood my assets and income that could be derived from them.

No criticism of those with different experiences. From what I have seen, having a lender familiar with uncommon situations makes a huge difference. So, don't be disappointed if the local mortgage broker can't help you or charges you an above market rate. Start where you have your money, and if they can't help, consider moving it to someone who can.

 

[Scuba]

OP, if your taxable accounts are generating dividends, realized capital gains and interest income that is showing up on your tax returns, then you should be able to get a mortgage based on that income.

I agree with others that the vast majority of lenders will ignore assets or charge much higher rates if they will even do an asset-based loan.

 

[Scuba]

I should add that we have successfully done two refinancing transactions based on investment income. We have not started pensions or social security, nor do we make regular, scheduled fixed withdrawals from our taxable accounts. We just withdraw when we need funds. They key was having sufficient taxable income on our returns from our investments, and I’m sure high credit scores didn’t hurt.

 

[pb4uski]

I should add that we have successfully done two refinancing transactions based on investment income. We have not started pensions or social security, nor do we make regular, scheduled fixed withdrawals from our taxable accounts. We just withdraw when we need funds. They key was having sufficient taxable income on our returns from our investments, and I’m sure high credit scores didn’t hurt.

Did that taxable income on your returns include irregular Roth conversions or irregular tax-deferred account withdrawals? Or more just interest and dividends? Include capital gains?

 

[youbet]

This may be the reason they are so hard to find. We’re just not worth the time to process exceptions. Too bad. Asset loans to those like on this board would likely be the safest they would ever make.

A key factor why lending institutions don't want to "process exceptions" is that the lending institution is often subject to scrutiny based on anti-discrimination laws. For example, exceptions that might tilt the numbers to make it look like geographic red-lining, racial discrimination or gender discrimination is taking place in their overall statistics. They need to have a set of rules that leads them to compliance and make zero exceptions.

 

[fosterscik]

I'm late to this thread but I thought I'd add to the "no problem if making regular withdrawals". We bought a new house in 2019, financed 80% (many hundred k) with no regular income with a local broker. Our monthly deposits from our taxable brokerage account to our checking account met the income criterion. They looked at our IRA balances etc. but were only interested in the monthly draws. They told us at the time we needed to have at least 3 month pattern of withdrawal. We have since refinanced (30 yr, 2.85%) trough the Costco program and again no problem as long as we had those fixed monthly transfers from brokerage to checking (but we now also have DW's (small) SS check too).

 

[pb4uski]

Interesting that they would accept transfers from taxable brokerage accounts since these don't show up as income on your tax return.

Given the disparity in reports we have received just in this thread, it seems that they are totally clueless.

 

[fosterscik]

Interesting that they would accept transfers from taxable brokerage accounts since these don't show up as income on your tax return.

Given the disparity in reports we have received just in this thread, it seems that they are totally clueless.

I agree. It's strange. I explored an asset based mortgage through Schwab and would have gone that route but it was unnecessary. We were early in retirement and still adjusting the amount transferred each month from brokerage to checking (I like having a "paycheck" ), but that didn't bother our original lender (CMG mortgage company). By the time we refinanced we had a steady draw in place and the process was very easy.

 

[Willers]

Interesting that they would accept transfers from taxable brokerage accounts since these don't show up as income on your tax return.

Given the disparity in reports we have received just in this thread, it seems that they are totally clueless.

A long time ago a banker had mentioned that as a way to "manufacture" income so that is why I mentioned it earlier. It probably depends on if a broker wants the loan or not.

I'm looking for options other than IRA distributions or Roth conversions because we will have a boatload of taxable gain from the sale (a good thing) which, since it is not recurring, will not help with loan qualification but would result in a hefty tax rate on any IRA money.

 

[MichaelB]

A key factor why lending institutions don't want to "process exceptions" is that the lending institution is often subject to scrutiny based on anti-discrimination laws. For example, exceptions that might tilt the numbers to make it look like geographic red-lining, racial discrimination or gender discrimination is taking place in their overall statistics. They need to have a set of rules that leads them to compliance and make zero exceptions.

Quite likely. An additional reason might be the packaging and sale of the mortgages to investors requires all the mortgages to meet certain standards and conditions, and income (or absence) is one.

 

[Willers]

Quite likely. An additional reason might be the packaging and sale of the mortgages to investors requires all the mortgages to meet certain standards and conditions, and income (or absence) is one.

Yes, they would probably have to keep a loan of this type in-house and not sell it off. We had a farm loan once that wasn't sellable and our local bank kept it. It was actually great not to have the lender change multiple times (as our other loans did) during the mortgage period.

 

[daylatedollarshort]

A long time ago a banker had mentioned that as a way to "manufacture" income so that is why I mentioned it earlier. It probably depends on if a broker wants the loan or not.

I'm looking for options other than IRA distributions or Roth conversions because we will have a boatload of taxable gain from the sale (a good thing) which, since it is not recurring, will not help with loan qualification but would result in a hefty tax rate on any IRA money.

The Costco lenders all told me we only needed to show the distributions for one month. Most of their debt to income ratios were pretty generous, like 50%. For example, if your mortgage loan, taxes and insurance would be $25K a year, and you have no other debt, you only need to show a $50K annual income to qualify. I didn't ask them about non-retirement distribution transfers, since it was easier for us to do the IRAs, but either way, assuming you had no other qualifying income, and you had to use retirement accounts, you would only have to withdraw a little over $4K for the $25K a year housing cost, or double that if your housing cost was twice as big. Wouldn't your tax cost just be you highest tax bracket times the ~$4K, or $8K or whatever your loan amount is? You are going to have to pay tax on that amount anyway, at some point. How much is your incremental tax different in the year you sell your home than other years? An extra .20 tax on $4K is only $800.

 

[Willers]

I’ll spare everyone the details of our tax situation but I’ll just say that we also have some other non-recurring income that came in this year that puts us in a high bracket for any additional ordinary income.

 

[daylatedollarshort]

I’ll spare everyone the details of our tax situation but I’ll just say that we also have some other non-recurring income that came in this year that puts us in a high bracket for any additional ordinary income.

The highest federal tax bracket is 37% so if you normally pay 12% that is an extra 25% in federal taxes but it would only need to be on one month's IRA transfers on the bare minimum annualized amount you need to meet the lender's qualifying ratios.