Say you're retired and living off non-401K/IRA savings....How difficult is it to get credit when you can claim a high net worth but hardly any "income". Does the opportunity to refinance your mortgage basically vanish? What are some strategies for dealing with this?
Getting credit as a retiree
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I just applied for a mortgage loan, and I’m in the same boat - high net worth and low/no income. I’ve never had to jump through so many hoops. The underwriter doesn’t seem to understand that I’m not tapping into my traditional retirement accounts. I get a monthly stipend from a money market account, and I don’t pay taxes on it - a concept that the underwriter can’t grasp. I had to supply two years of tax documents and write a letter explaining why I don’t pay taxes on the monthly stipend. My Vanguard rep just keeps shaking his head at the absurd requests. Makes me want to go elsewhere for a loan, but I suspect it will be the same wherever I go.
Ronstar
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I haven't applied for a mortgage post retirement, but did apply for a truck loan in order to get a better deal. Had to have DW co-sign. I have very little income - still living off of cash. DW has a pension which was ok for the loan.
I can't remember any part of the loan paperwork asking for a list of portfolio assets. IIRC, they just wanted to know income.
I can't remember any part of the loan paperwork asking for a list of portfolio assets. IIRC, they just wanted to know income.
Senator
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I did get a $55k truck loan from Ford to get $750 cash back. It was not a problem.
I paid all but ~$7K off in two weeks, and the let the payments run out the rest of the balance in the four months I promised I would keep the loan.
I paid all but ~$7K off in two weeks, and the let the payments run out the rest of the balance in the four months I promised I would keep the loan.
CardsFan
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DW wants to get a new car in the next few months, so I guess I will find out. Since we are converting tIRA money to Roth, I can honestly tell them the number on our tax forms, but I know they cannot access that to confirm. Worst case, we'll pay cash. Might do that any way, depending on the financing offers.
euro
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Sounds like this may be a hypothetical scenario for you right now? While it is POSSIBLE to get a mortgage post FIRE, it is a MUCH bigger hassle, so if you are still employed and are pondering retirement, go ahead and get your mortgage NOW. You'll be glad you did.
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in general, credit isn't hard (credit cards, small stuff, say, car note and less). Net worth is irrelevant to lending risk calculations. Your credit score helps, but lack of w2 income makes it tricky for mortgages and big stuff.
we each got an extra CC and took out a heloc before we RE'd so we have as much in the available credit area as we'd ever need, barring a mortgage. If we sold the house first to move, that's a non issue...we'd only have a gap if we wanted to buy first then sell - which would mean either working with a lender for a mortgage for a bridge, or selling equities and taking the income/tax/aca hit for a year.
we each got an extra CC and took out a heloc before we RE'd so we have as much in the available credit area as we'd ever need, barring a mortgage. If we sold the house first to move, that's a non issue...we'd only have a gap if we wanted to buy first then sell - which would mean either working with a lender for a mortgage for a bridge, or selling equities and taking the income/tax/aca hit for a year.
Floridatennisplayer
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Interesting topic. I bought a new car in late April. Around $72k. The finance guy said how do we want to do this? Cash, lease, loan?
I’ve paid cash for my last 4, but said I was curious what the process would be since I’m retired with no job. He smiled and said if you write a check, you can be out of here in 7 minutes. Apply for the other options and I have a stack of papers for you to go over and sign and a full body cavity search. I wrote the check. Didn’t need another colonoscopy.
I’ve paid cash for my last 4, but said I was curious what the process would be since I’m retired with no job. He smiled and said if you write a check, you can be out of here in 7 minutes. Apply for the other options and I have a stack of papers for you to go over and sign and a full body cavity search. I wrote the check. Didn’t need another colonoscopy.
harley
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It's easy enough to get the card, but if you want to increase the limit it's still a PITA with little or no income.
Got the same issue right now. I haven't started shopping for the bridge loan yet, as I'm hoping the current home sells before we close on the new one. I hope it's not as hard as actually getting a mortgage or a HELOC. I'd hate to incur extra taxes by drawing down from pre-tax investments. I'm actually considering taking money from a Roth and then "rolling it over" to another Roth within the 60 day limit.
rk911
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disagree. we've been happily unemployed (well, we were school xing guards till last year but that was pocket change) since 2003 (me) and 2004 (wife). we keep three cards...one for everything/everyday, one for online and one we keep in a safe in case others are stolen or compromised. over the years i've asked the everyday CC issuer for a credit limit increase to allow a special one-time purchase and each time the issuer has given us that increase. our credit limit on that card now stands well over $20k. no muss, no fuss. we have been with that card issuer forever and were among the first group to get that card when it was introduced. loyalty can pay off.
I agree with others that getting a mortgage without a lot of income is a hassle. Some lenders do asset-based lending, but the rate is quite a bit higher. Interestingly, monthly or quarterly regular distributions from retirement accounts are counted as income, but similar distributions from taxable accounts don’t. Go figure.
Z3Dreamer
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Going through this now. They will accept: Social Security income based on the annual letter, retirement income from an IRA - as long as you have at least 2 months of equal payments, a note receivable - as long as it was signed more than a year ago and has at least 3 years. These 3 forms of income were accepted for us. Traditional pensions, jobs, and other things qualify, also.
Here are the FNMA standards https://www.fanniemae.com/content/guide/selling/b3/3.1/09.html
Here are the FNMA standards https://www.fanniemae.com/content/guide/selling/b3/3.1/09.html
jazz4cash
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This question comes up very frequently. OPs question is rather generic but here’s my 2 cents.
Many members report credit is available but may require navigating some hoops. That has been my experience albeit hypothetically. The required actions depend on the institution and/or type of credit requested ( mortgage, credit card, etc).
It can be as simple as setting up systematic withdrawals to a checking or savings account which could even be temporary. Many folks report getting HELOC or refinancing prior to loss of income to avoid the extra hassle. Some lenders offer asset depletion loans that assume X % of your qualified assets can be used for income. Ask the lender you are seeking to do business with.
Many members report credit is available but may require navigating some hoops. That has been my experience albeit hypothetically. The required actions depend on the institution and/or type of credit requested ( mortgage, credit card, etc).
It can be as simple as setting up systematic withdrawals to a checking or savings account which could even be temporary. Many folks report getting HELOC or refinancing prior to loss of income to avoid the extra hassle. Some lenders offer asset depletion loans that assume X % of your qualified assets can be used for income. Ask the lender you are seeking to do business with.
gwraigty
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I got an informational letter recently from Schwab about using brokerage assets to qualify for loans. I don't know if this is a relatively new offering from them. If so, maybe this sort of thing might catch on among other firms.
ShokWaveRider
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Is return on investments counted? For example if one has $3m in CDs that pays ~3.9%, the accounts will show ~$117k pa or $9750 per month being deposited into various accounts (re-invested most times) but still show a monthly return. How would that fair?
FANOFJESUS
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My credit union does not count dividends as income only interest. A retiree can have very little interest.
I got a mortgage as a retiree and jumped through many hoops. Like others, I have plenty of assets but low income. I was buying a house with a $300K mortgage, approx. My mortgage banker had me set up an automatic withdrawal from my IRA (at 69) for $6K a month. That, apparently, was sufficient. I also had stopped charging a lot so the balance on my cards was kept low. I always pay the cards off each month. As soon as I got the mortgage and signed on the house, I stopped the automatic withdrawals and put the money back in my IRA - it was less than 60 days so there was no taxable event. The irony does not escape me.
My mortgage is at 4.125% so I wasn’t penalized in any way. No points etc. with a 20% or so down payment.
My mortgage is at 4.125% so I wasn’t penalized in any way. No points etc. with a 20% or so down payment.
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Floridatennisplayer
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The bigger question or concern for me would be .......if you are FIRE ........ what on earth are you doing trying to get a loan?
I moved across the country, to an area where houses cost more. I could have sold investments to buy the new house but that wasn’t a good use of assets. I put down a substantial down payment to avoid points, etc.
Floridatennisplayer
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Got ya, makes sense.
harley
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Everything is relative. I've been trying to increase our limit from $41K to $50K. Going up a few thousand on a lower limit wouldn't be as hard.
If credit rates are less than the ROI of investing the same money, then a loan is a good thing. Especially if the interest is tax deductible.
My mortgage is 2.625% now, but goes adjustible two years from now. I might be FIRE'ed by then, but I will still want to re-fi it into another 5/1 ARM.
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Big_Hitter
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would it help if you had more annuity income?
harley
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Interest is rarely tax deductible anymore, at least until the recent tax laws change back or are changed again. I always counted the tax deduction on my mortgage against the interest rate when determining it's value. But I didn't itemize last year (first time since the 80s) so I wouldn't consider it anymore.
We just tried this last year and even with "normal income" still showing from a small business we started it was extremely difficult (at east at rates you'd consider taking).
Most mortgage institutions will require two years of income "from an outside source" in order to give you the credit.. The backup is usually "x" number of months of cash reserve, but it has to be in your checking/savings account... so depending on the institution you could be fine as long as you can pull out the cash to put there at leas through closing... but I'd still reccommend the refi now rather than hoping later.
