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New Mortgage in retirement
Old 07-14-2020, 04:55 PM   #1
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New Mortgage in retirement

Newbie here,
Not quite retired yet, but thinking ahead. Once I'm retired I'd like to get a vacation home. I'm just wondering how hard it is to get a mortgage with no income and would I have to pay a higher rate? I'd be able to pay cash for anything I buy, but with rates so low I think it would make more sense to take out a mortgage and pay it off slowly instead of having to pull out 401K money and get hit with a big income tax bill.

Note I fully own my current house (no mortgage), so this would be my only mortgage.

Jeff
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Old 07-14-2020, 05:00 PM   #2
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Here are a few recent threads on the subject:

https://www.early-retirement.org/for...ome-98294.html
https://www.early-retirement.org/for...ent-94841.html
https://www.early-retirement.org/for...ees-96394.html
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Thanks!
Old 07-14-2020, 05:02 PM   #3
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Thanks!

I did try searching, but there's so much info I was unable to create a search that didn't return 30 pages. Is there a way to do a search that only returns posts with all the requested words? Or any other secrets?
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Old 07-14-2020, 05:07 PM   #4
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Look for a Google search box like this near the top of the page. I get far better results using it rather than the forum's search tools.
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Old 07-14-2020, 09:14 PM   #5
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Quote:
Originally Posted by jeffschmitz View Post
Newbie here,
Not quite retired yet, but thinking ahead. Once I'm retired I'd like to get a vacation home. I'm just wondering how hard it is to get a mortgage with no income and would I have to pay a higher rate? I'd be able to pay cash for anything I buy, but with rates so low I think it would make more sense to take out a mortgage and pay it off slowly instead of having to pull out 401K money and get hit with a big income tax bill.

Note I fully own my current house (no mortgage), so this would be my only mortgage.

Jeff
The answer is "Damned hard". I would strongly recommend getting the mortgage before you stop having income. It's not going to be a matter of higher interest rates, it's not having an income. Unless you are very lucky and find a mortgage company that will consider assets (few and far between), the only thing they look at is the income/debt ratio. If you have no real income, it's unlikely you will qualify as everyone has some debt (credit cards, taxes, etc.). They tend to want your debt to be no more than 35% of your income. That would be counting the mortgage you are trying for. SS and IRA distributions count as income, as well as any real income (job, rental, etc.). You have a few million in the bank? Who cares? If you are pre-SS, pre-IRA withdrawals, and post employment it's going to be hard, but not impossible. Get the loan before the paycheck ends. That's my recommendation.
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Old 07-14-2020, 09:28 PM   #6
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Quote:
Originally Posted by jeffschmitz View Post
Newbie here,
Not quite retired yet, but thinking ahead. Once I'm retired I'd like to get a vacation home. I'm just wondering how hard it is to get a mortgage with no income and would I have to pay a higher rate? I'd be able to pay cash for anything I buy, but with rates so low I think it would make more sense to take out a mortgage and pay it off slowly instead of having to pull out 401K money and get hit with a big income tax bill.

Note I fully own my current house (no mortgage), so this would be my only mortgage.

Jeff
Answer is it depends on your investment portfolio as you can borrow against that. I bought a vacation home with a mortgage because the rates were much less than I was making in the market, it was arranged by my Financial advisor at UBS through their banking division, as a good customer it didn’t have all the usual fees.

Recently the brokerage firm offered a sort term interest only loans with a fixed rate for 1, 3 or 5 years. The rate I got for 3 years is 1.5%, no fees or points. I will pay off my mortgage with it, continue to set aside the same principal and interest payment every month so in 3 years can pay off a healthy chunk of it if I want to refinance or simply pay it off..
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Old 07-14-2020, 09:37 PM   #7
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Banks love you if you have guaranteed income such as pensions, SS income or other. If you don't have guaranteed income they will consider your monetary assets reduced by a factor within their formula. We had no problem whatsoever since we had retirement income good bit higher than what was needed to qualify for the mortgage payment
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Old 07-14-2020, 09:38 PM   #8
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Are you taking SS yet or not? If you are taking SS then you can use that for some income. Regardless if you are old enough to withdraw from an IRA this is simple even if you don't take SS yet. We did this recently.

1. Set up an ongoing IRA withdrawal for whatever income you need for your loan. We needed to have all debt (of any kind) not exceed 50% of income. That did include the prorata monthly cost of insurance and taxes along with the mortgage and anything else. We used SS for part of the income required and used the IRA withdrawal for the rest.

2. We were told to set it up so that we had had at least one withdrawal prior to the loan starting.

3. We had to have enough money in the IRA to cover a certain amount of withdrawals. Maybe 3 years? I don't recall. We had a lot more than was needed. You don't have to keep withdrawal going for that long. You just need to have enough money to do it.

That was basically it what we had to show for the income purposes.

If you are pre-IRA withdrawal age then research asset depletion mortgage. You should use someone for your mortgage who is familiar with the process.
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Old 07-15-2020, 06:38 AM   #9
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A couple follow ups if you don't mind. What determines "when the paycheck stops"? Do you just have to show tax returns from the last couple years, or will you need to send a copy of a recent check? If so, how recent? When I retire I'll have access to my 401K with my employer through the rule of 55, is that something I'd likely be able to setup an ongoing withdrawal with? If so I think that's the answer to my issue, otherwise I'll need to hurry up and buy my house, probably while I'm taking my built up vacation (5 weeks) before my official retirement date. Doable I guess but I'd rather not be rushed.
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Old 07-15-2020, 06:51 AM   #10
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Maybe you can get HELOC on your current house which will allow you to make *strong* cash offer for vacation house. You can get HELOC now while you work and let that cash/credit sits around until you are ready to use it. (That costs you pretty much nothing. Maybe 90-100 bucks closing fees and 10 dollars a year maintenance fee)

Best rates right now are Prime - 1.01 which comes to 2.24%. Pretty good IMO
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Old 07-15-2020, 07:39 AM   #11
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We ran into this problem when we retired and moved to a different city in 2009. The big banks wouldn't consider us. But, we found a small savings and loan in the town where I had worked and they were more than willing to make the loan.
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Old 07-15-2020, 08:11 AM   #12
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Originally Posted by sheldon cornped View Post
Banks love you if you have guaranteed income such as pensions, SS income or other. If you don't have guaranteed income they will consider your monetary assets reduced by a factor within their formula. We had no problem whatsoever since we had retirement income good bit higher than what was needed to qualify for the mortgage payment
+1. With 2 pensions and 2 SS streams, we were golden.
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Old 07-15-2020, 07:07 PM   #13
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Originally Posted by jeffschmitz View Post
Newbie here,
Not quite retired yet, but thinking ahead. Once I'm retired I'd like to get a vacation home. I'm just wondering how hard it is to get a mortgage with no income and would I have to pay a higher rate? I'd be able to pay cash for anything I buy, but with rates so low I think it would make more sense to take out a mortgage and pay it off slowly instead of having to pull out 401K money and get hit with a big income tax bill.

Note I fully own my current house (no mortgage), so this would be my only mortgage.

Jeff
Jeff,

I own my home, free and clear. Nine years into retirement, I decided to become a snowbird and bought a condo in Florida. I got a mortgage at 2.89% through Third Federal Savings and Loan https://www.thirdfederal.com/ which was based solely on my mini-pension and investment assets, as I still have not started collecting SS. Like you, I preferred a mortgage, as my investments were making more than 2.89% plus I didn't want the tax hit of withdrawing a large sum of money from my tIRA.

Third Federal pre-qualified me for a certain amount based on a few questions their loan officer asked me over the phone which made it easy to "go shopping". When I found the condo I wanted, I had to show verifying paperwork (income tax statements, insurance policy on my existing home, receipts for payment of real estate taxes on my existing home, plus copies of my tIRAs, etc.) to the loan officer at Third Federal. I got the mortgage loan with no issues and very low fees. I found Third Federal very easy to work with and would recommend them. They write mortgages all over the U.S., btw.

omni
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Old 07-15-2020, 10:01 PM   #14
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Omni550 said this:
" I didn't want the tax hit of withdrawing a large sum of money from my tIRA."

This is the biggest reason I wanted a mortgage for my second home.

I was able to get one, but I was over 59.5, so I could withdraw from IRA accounts, and count this as income. collecting SS or a pension would be a big help.

I had no debt, and a paid off home. They made me increase my monthly withdrawals so it looked like I had more income.

I ended up getting a mortgage against my paid off home, and only borrowed about 40% of the value.

I thought it would be a slam dunk, because I had 60% of my house basically as a downpayment. I figured they would be happy if I forclosed.

They scrutinized my financial situation in an amazingly detailed way. I even asked the closing person why they did this. She said they don't want to ever get a home back on foreclosure. They often take a loss by just selling it off to a liquidation company.

Good luck, JP
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Old 07-16-2020, 12:44 AM   #15
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Originally Posted by jeffschmitz View Post
A couple follow ups if you don't mind. What determines "when the paycheck stops"? Do you just have to show tax returns from the last couple years, or will you need to send a copy of a recent check? If so, how recent? When I retire I'll have access to my 401K with my employer through the rule of 55, is that something I'd likely be able to setup an ongoing withdrawal with? If so I think that's the answer to my issue, otherwise I'll need to hurry up and buy my house, probably while I'm taking my built up vacation (5 weeks) before my official retirement date. Doable I guess but I'd rather not be rushed.
Most 401ks don't let you set up recurring withdrawals. You need to find out what yours allows. Maybe you could do a 72(t) Ira withdrawal but not sure that would work for what you need to do. You need to consult with someone knowledgeable about this kind of mortgage and see what your options are. I am assuming you are under 59 1/2.

Also, again, look up asset depletion mortgage. Use a mortgage company or broker who is familiar with them.
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Old 07-16-2020, 08:50 AM   #16
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We refinanced a 4.375% mortgage on our home, and paid off a rental mortgage that was a floater that reached 5%, and a 4.25% mortgage on another. New rate is 3.375%, and improved cash flow to +$980/month. We were 5 years into retirement with 2 pensions, a very decent portfolio, and rental income. The bank closed on our loan in less than 4 weeks. However, it took 4 months with the same bank to re open a HELOC. I guess a different set of underwriters was unhappy with the cash deposits from the rentals and wanted to monitor. But we qualified without even using rental income, so I don't understand what the problem was.
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