Getting loans when retired

[doneat54]

I retired 4 years ago and DW has just announced her retirement date of May 2022. We are refinancing our primary home, even though we plan to sell it in a year, to pull some equity out of it in cash do something with now (and it will still lower our payment by $100/mo with the lower rate) and the lender has said we should close out a Home Equity line of credit we have now, with a bank we plan to leave in a year also. The HELOC is zero'ed out, but closing it out will simplify closing on the refi.


Which brings me to my question. How easy/difficult is it to get loans when both husband and wife are retired? We think we want to establish a new HELOC with our target new bank *before* DW retires, just to have source of low interest cash if needed, but no fixed plans to use it for anything right now.


So I am interested in hearing about fully retired couples (both husband and wife, if that is the case) experiences with getting loans. I have heard of really bad experiences even though couples may have very large NW's, but no pensions/annuities (we won't have them).


Loans:


Mortgages (we have no plans for any new ones)
Equity Lines of Credit
Auto financing (no plans there either)
Other financing offered by furniture merchants, for example






Just trying to get some idea of what that playing field looks like from people who have played that game before. Thanks.

 

[TheWizard]

Should be fairly easy if you can show income tax form 1040 with a good sized AGI for the past few years of retirement.
If first year of retirement, it could be dicier; you could appear to be merely unemployed...

 

[Bamaman]

I was once on the credit desk, and a credit application came through on an older gentleman. On the CBR, it was like he didn't exist. He was a credit spook that'd never bought anything on credit--one of the rare forgotten people.

I turned down the deal. He wrote a check and produced a checking statement that'd choke a horse.

If you're sitting with a huge retirement account waiting to be withdrawn monthly, produce a copy of that statement and you're road ready on your loan. Mortgage companies go through this situation daily.

 

[Another Reader]

Some banks are not currently offering HELOCs. Wells Fargo and Chase are two of them. Better check before you close the current line.

 

[daylatedollarshort]

Retiree loans, with no employment income, seem to be okay with most lenders (at least most of the ones on the Costco mortgage program) as long as you still have some kind of regularly scheduled income, like monthly SS, annuity payments, pension payments or retirement accounts with automatic, monthly distributions set up. We've been told they need to see the form setting up the monthly distributions and at least one actual transfer. A borrower can have $10B in retirement accounts but apparently they would not give a $100K loan to Warren Buffet unless he had those monthly distributions set up, which can be revoked at any time and as soon as the loan closes. It makes no sense, but that is my understanding of the process and if you want a loan you have to follow the process.

One credit union told me they looked at income on federal tax forms for the past two years, but they were an anomaly.

 

[Starsky]

Definitely it's easier if you do it before DW leaves her job. It's possible that you could qualify afterwards by setting up a distribution schedule, but it will assuredly be more difficult than using W2 income to get it done.

As you suggested, getting a loan isn't a problem if you have steady monthly government payments, annuities or pension income to qualify, but not so easy if you use your investment income. Assets are worthless to qualify for a traditional HELOC, and they will discount or zero out streams of income that are not guaranteed. Setting up scheduled payments may help get the job done; but for us, it would have created unnecessary taxes and there were no assurances from underwriting that it would even work at the time. Hopefully it will get easier as the economy improves.

 

[daylatedollarshort]

Setting up scheduled payments may help get the job done; but for us, it would have created unnecessary taxes and there were no assurances from underwriting that it would even work at the time. Hopefully it will get easier as the economy improves.

We've been assured it will work and they only need to see one month's deposits and then we can end the monthly distributions. Stay tuned for updates as we have not closed yet.

 

[texcurtis]

I recently closed on a second house with a loan. Treated my monthly pension & saving withdrawals as the ‘income’. Been retired 6 years with no work income. I was initially concerned, so got pre-approved and found the house and had no issues closing.

 

[Retired Expat]

I was once on the credit desk, and a credit application came through on an older gentleman. On the CBR, it was like he didn't exist. He was a credit spook that'd never bought anything on credit--one of the rare forgotten people.

I turned down the deal. He wrote a check and produced a checking statement that'd choke a horse.

If you're sitting with a huge retirement account waiting to be withdrawn monthly, produce a copy of that statement and you're road ready on your loan. Mortgage companies go through this situation daily.

If you have a healthy retirement account or investment account your brokerage firm may offer you a low cost loan using your investments as collateral. I did this to buy and renovate our new home before selling our existing one. 500+K. No points, no fees just straight interest for 1-3 years at about 2%. Was going to otherwise sell investments returning 8% or thereabouts.

 

[Ronstar]

I bought a truck through Ford credit. The salesman talked me into it - I wanted to pay cash, but they offered another $1k off if I went Ford credit.

The credit app asked for sources of income. I have no pension, and this was before I started taking ss, and my non-ira dividends/interest are minimal, so I listed $0 for income.

The salesman said that $0 would be a deal breaker and asked about DW. She has a pension, so I added her as a co-signor and I got the truck loan. I don't remember the credit app having a section on assets - I only remember the income part.

 

[teejayevans]

For mortgages You need to show a history of income (last 2 years) and need to have automated withdrawals from IRA to make it look like a pension. They don’t trust you to make withdrawals on your own.
Even if you have 800 credit score.
Car loans just need a good credit score.

 

[rrppve]

Get the HELOC in place before DW retires. It’s surprisingly tough to get a home loan as a retiree before age 62, at which point you can qualify for reverse mortgage programs.
I’ve left my HELOC in place and also opened a brokerage portfolio LOC as sources of emergency or bridge liquidity.
Car loans are easy, as long as you have good credit.

 

[Trawler]

Several years back my wife and I who both retired with no set stream of income and both under 59.5 years of age went to get pre-approved for a fixed rate mortgage to purchase a new home
and had a hard time with mortgage brokers. What we learned is fannie mae and freddie mac required a stream of income even though we were putting 50% down and could show assets that would could pay the loan we wanted 15x over. What we also discovered is fannie and freddie would look at retirement assets to determine income for qualifying purposes only if one could access them with out penalty. If above the age of 59.5 they would take retirement assets and divide by 360 to determinemonthly income. We both had credit scores of over 800. was able to get pre appoved at Chase through Private Banking Relationship and they waived the without penalty clause on retirement assets. Took out a car loan and they used stated income and I used how much we spend annually. As previous poster stated several large banks not doing HELOCs right now. Did get a HELOC 5 years ago and had no problem once I showed them assets.

 

[W2R]

I don't mean to sound snooty, but here's what came to my mind when reading the title of this thread.

I'm in my 12th year of retirement, and like every other retired person here I am sitting on a substantial nest egg that allowed me to retire, along with a paid off home and car.

The thought of even applying for a loan in retirement seems wacky to me from my vantage point. If I wanted to borrow money (which I don't), I suppose that I'd borrow it from myself.

 

[RetiredAt55.5]

I don't mean to sound snooty, but here's what came to my mind when reading the title of this thread.

I'm in my 12th year of retirement, and like every other retired person here I am sitting on a substantial nest egg that allowed me to retire, along with a paid off home and car.

The thought of even applying for a loan in retirement seems wacky to me from my vantage point. If I wanted to borrow money (which I don't), I suppose that I'd borrow it from myself.

I think in some cases it makes sense to carry a mortgage in retirement. But this has been discussed on this forum a number of times already, so I won't reiterate some of the possible considerations. No need to derail this discussion.

I'm 5 years in and I still carry a mortgage myself, so I don't think it's wacky. Obviously.

 

[daylatedollarshort]

I don't mean to sound snooty, but here's what came to my mind when reading the title of this thread.

I'm in my 12th year of retirement, and like every other retired person here I am sitting on a substantial nest egg that allowed me to retire, along with a paid off home and car.

The thought of even applying for a loan in retirement seems wacky to me from my vantage point. If I wanted to borrow money (which I don't), I suppose that I'd borrow it from myself.

This is kind of an age old question here with varying opinions. Some reasons to borrow / have a mortgage in retirement - cheap asset protection (money in 401Ks in California is more asset protected than homes), taking advantage of historically low rates (borrowing now at under 3% and betting one can make a higher rate in future investment returns), staying under the ACA cap (money from the house is not taxable), staying under college financial aid caps, freeing up money so the savings can be used for Roth conversions - those are some reasons. YMMV.

 

[Splash]

About a year ago, DH and I got a HELOC from a regional bank in our area without any issues. At the time, we were both 58, retired 3 years, and living off our after tax retirement investments. The bank required statements of all our investments (taxable accounts, IRAs, Roth IRAs). They paid to have our house (loan collateral) assessed. We wanted the HELOC in case we needed help managing our income for ACA subsidy purposes or to help bridge the purchase of a new property.

 

[ERD50]

We've been assured it will work and they only need to see one month's deposits and then we can end the monthly distributions. Stay tuned for updates as we have not closed yet.

Please let us know how it goes. We closed on our new-to-us home last month, I used a Line-Of-Credit against my brokerage account to pay in cash, which simplified the closing. But (being wacky I guess), I'm looking to get a 30 year mortgage and lock in these low rates. The LOC is ~ 2.9%, but variable, so who knows where that might go (up, probably!)?

I was told that no one will want to touch a mortgage application for 6 months after the sale, not sure why - maybe to let all the title stuff 'settle'?

Sure seems weird that setting up regular withdrawals will qualify, but I have learned that these are rules, logic be damned!

-ERD50

 

[l8_apex]

Do you want to hear from a retired single? You've specifically said married couples, so I figure I better ask.

 

[daylatedollarshort]

Please let us know how it goes.

Will do!

 

[cat4ever]

Retiree loans, with no employment income, seem to be okay with most lenders (at least most of the ones on the Costco mortgage program) as long as you still have some kind of regularly scheduled income, like monthly SS, annuity payments, pension payments or retirement accounts with automatic, monthly distributions set up. We've been told they need to see the form setting up the monthly distributions and at least one actual transfer. A borrower can have $10B in retirement accounts but apparently they would not give a $100K loan to Warren Buffet unless he had those monthly distributions set up, which can be revoked at any time and as soon as the loan closes. It makes no sense, but that is my understanding of the process and if you want a loan you have to follow the process.

One credit union told me they looked at income on federal tax forms for the past two years, but they were an anomaly.

+1 This is exactly my experience having just closed on a $200,000 refi after retiring. And don't think you can just show last year's 1040 or that you can retire during the process. they check with your "current" employer multiple times right up to the closing date. And yes, closing out a zeroed out HELOC will likely be required, and if you haven't had it opened for long it may cost you to close it. There's something called subordination of the HELOC that you can try, but that will add to your closing costs too.

 

[Koolau]

Which brings me to my question. How easy/difficult is it to get loans when both husband and wife are retired? We think we want to establish a new HELOC with our target new bank *before* DW retires, just to have source of low interest cash if needed, but no fixed plans to use it for anything right now.


So I am interested in hearing about fully retired couples (both husband and wife, if that is the case) experiences with getting loans. I have heard of really bad experiences even though couples may have very large NW's, but no pensions/annuities (we won't have them).

I don't mean to sound snooty, but here's what came to my mind when reading the title of this thread.

I'm in my 12th year of retirement, and like every other retired person here I am sitting on a substantial nest egg that allowed me to retire, along with a paid off home and car.

The thought of even applying for a loan in retirement seems wacky to me from my vantage point. If I wanted to borrow money (which I don't), I suppose that I'd borrow it from myself.

We went through this ca. 2010. We essentially needed a "bridge" loan so we could buy a new place and still keep the old one to fix it up while remodeling the new place. We needed about 6 months total. Our credit scores were like 820!

Banks didn't want to talk to us because even though we had the assets to purchase the new place for cash they ONLY cared about income. We hadn't started SS yet and pension was modest. We lived on the last of our free cash plus pension and a little bit of 401(k) withdrawals.

One bank said, well, if you can pay cash then why DON'T you. Fair enough, why not? Easy! WAY too much of our stash had ended up in qualified savings (tIRAs and 401(k)) so would have meant BIG income in one year with lots of taxes. We simply didn't have enough outside of qualified plans to "borrow from ourselves."

Finally a bank said show us your taxes for 3 years. Turns out we'd converted a bunch of 401(k) money to ROTHs. THAT was our salvation. Even though we actually had LESS total assets (after all, we had to pay taxes on the conversions) the conversion gave us "income" on our 1040 and the bank was happy with that. That was another reason we were low on non-qualified cash or assets. We'd spent a fair amount on taxes over the 3 years for the conversions. Total balderdash thinking on the part of the bank in my opinion but it got us our loan. Who knew? YMMV

 

[street]

OP, in my case I have not got a loan while retired. When I did get loans, my bank would charge me 1% over what they were giving my in interest on my CD's. So, if I was making 1.5% interest on a CD, they would loan me money 1% over that amount. So, I would get a loan with an interest rate of 2.5% interest.

I'm sure I could go in and barrow against a CD today, being retired and get interest at 1% over CD rate.

For me this was a win win and paid off early.

I would think getting a loan without an income but having money with an institution, a loan would be easy to do.

 

[ERD50]

OP, in my case I have not got a loan while retired. When I did get loans, my bank would charge me 1% over what they were giving my in interest on my CD's. So, if I was making 1.5% interest on a CD, they would loan me money 1% over that amount. So, I would get a loan with an interest rate of 2.5% interest.

I'm sure I could go in and barrow against a CD today, being retired and get interest at 1% over CD rate.

For me this was a win win and paid off early.

Those of us choosing a mortgage use a different calculation. We plan to keep the money invested over the 30 year mortgage term, and historically, the long term returns in the market have always been higher than current mortgage rates, and mostly much higher.

Sure, there is some risk that the future will be different, but that seems like a very small risk, and one I can afford (my mortgage isn't a huge % of my portfolio). With the historical odds so far in my favor, it seems far less risky than just about anything, including the inflation risk in holding CD/cash.

From an earlier post:

Maybe someone can come up with more recent/better sources, but these show 20 and 30 year rolling average total returns for the stock market:

https://awealthofcommonsense.com/2016/05/deconstructing-30-year-stock-market-returns/

https://www.crestmontresearch.com/docs/Stock-20-Yr-Returns.pdf

From what I can see, only three 20 year periods dropped below 5%, and only one barely below 4% (out of 78).

Thirty year returns were all above 7.75%
And the average returns of course, are way higher. Historically, investments have beat a 3.5% mortgage over all 20 year cycles, and even the very worst had double the return over 30 year cycles. It's no guarantee, the future could be worse than the worst of the past, but if you don't take the bets that a clearly in your favor, you are unlikely to get ahead.

-ERD50

 

[ERD50]

Originally Posted by W2R View Post
I don't mean to sound snooty, but here's what came to my mind when reading the title of this thread.

I'm in my 12th year of retirement, and like every other retired person here I am sitting on a substantial nest egg that allowed me to retire, along with a paid off home and car.

The thought of even applying for a loan in retirement seems wacky to me from my vantage point. If I wanted to borrow money (which I don't), I suppose that I'd borrow it from myself.

... One bank said, well, if you can pay cash then why DON'T you. Fair enough, why not? Easy! WAY too much of our stash had ended up in qualified savings (tIRAs and 401(k)) so would have meant BIG income in one year with lots of taxes. We simply didn't have enough outside of qualified plans to "borrow from ourselves." ...

My case as well. Taking out a loan meant I could avoid paying a lot of tax and pushing me into the next bracket, either cap gains tax on my portfolio, or full tax on a tIRA withdrawal, or dipping into Roths and eating up that tax advantage.

I don't know that I'd categorize W2R's response as 'snooty', but viewing a mortgage in retirement as 'wacky' just seems to be ignoring some of the facts. Why do that? I sure don't view it as wacky to not have a mortgage in retirement, though I do think it is a missed opportunity, but still just a personal choice.

-ERD50