PSA: Tips on getting a mortgage in retirement

[ERD50]

Quote:

Originally Posted by karen1972 I'm curious about age. I got the impression if I was over 59.5 I would not have had to jump thru nearly the hoops because suddenly they could accept my IRAs as "allowed" income sources but before that it was like they didn't exist and they had no idea how anyone could possible get money out. I wasn't willing to set up a 72t just to prove them wrong but given the answers here, curious if it was just who I went to or if its because people were over 59.5.

As I mentioned up-stream, the key is to talk to the lender and find out what does qualify before you start providing any documentation to them. That's the key to avoid getting caught up in additional questions and hoops and more documents and more questions. Provide only the bare minimum of documentation/accounts to qualify, once you know what that is.

Some might accept the IRA balance, I don't know. The people I talked to had to see the actual recurring cash flow and that it could be supported for some years (~ 3 IIRC). All this could vary lender to lender, so ask, then figure out how to meet their requirements with the least amount of effort o your part.

-ERD50

[marko]

This is exactly what happened to us.

We had never had a mortgage but we were worried about selling our old house in time for the new house to be paid for so we applied for a bridge-type loan.

Despite an 850 credit rating, several million in investments, zero debt, etc. we were denied.

Our problem was that we took our withdrawals as we needed money, not on a regular basis.

What they needed to see was "regular and formal withdrawals". Fortunately our old house sold in 45 minutes and we just paid cash when the new house was finished. They simply needed to have a box checked and there was no way around it.

[davidfin]

Retired 10 years which is also the anniversary of my HELOC. Been with this credit union 25 years. Have monthly e- deposits to my CU checking acct for the past 120 months sourced from my brokerage account. You would think that would be sufficient to renew HELOC. You’d be wrong. The CU forced me to make 3 monthly transfers from either a tIRA or. Roth retirement acct. Apparently this is a Fanny Mae requirement. Makes no sense. Cost me considerable opportunity cost.

[Out-to-Lunch]

Quote:

Originally Posted by Out-to-Lunch My understanding is the same as yours (and differs from the previous poster). I am under 59.5, and for an asset-depletion loan my lender will only count the money in my 403(b) (which I have access to), and not my IRAs. Over 59.5, they count all of that. This does not make a lot of sense to me. They discount the money in the plans you do have access to by 30% due to stock volatility. Well, why can't they discount another 10% due to early withdrawal penalty? And why not count my Roth basis (which I can access without penalty)?

I should have mentioned that some of the rules that the lenders follow are Freddie Mac rules. So, if the lender wants to sell this loan later, they feel the need to follow Fannie/Freddie rules.

Some rules may be found here: https://guide.freddiemac.com/app/guide/section/5307.1

Quote:

As of the Note Date, the Borrower must have access to withdraw the funds in their entirety, less any portion pledged as collateral for a loan or otherwise encumbered, without being subject to a penalty or an additional early distribution tax

[GTFan]

Just FYI but Schwab and others offer asset-backed mortgages via Quicken Loans, where the amount you qualify for depends on the size of your portfolio with them.

https://www.caniretireyet.com/gettin...but-no-income/

As mentioned it's worth talking to a mortgage broker who has experience in this area as well as your local CUs.

[DanP]

Sorry if I missed something in the earlier posts: if one is in a position of having enough assets and can secure an asset-backed LOC at a competitive rate, what is the advantage of changing that to a mortgage?

I'm rusty on the topic but isn't mortgage interest still capped (which may or may not apply here) while the LOC interest would be treated as a deductible investment expense?

[ncbill]

Asset-backed LOC @ my brokerage ~3%..."pledged asset line"

Limited to 65% of one's taxable portfolio only.

Others over on bogleheads report negotiating margin loan rates of ~1.5% at other brokers...again, taxable only.

[txbill]

IRa's, Roth's, are not defined as sources of income. They are assets They are optional withdrawals by the owner and even the RMDs are not what the bank wants to see. A definable and reliable source of income to repay the loans. They still remember 2008 very well. We just got a 260k loan, after 40% down payment. The accepted available sources of income were ss cks, annuity payments, and 3 year end statements from TD plus current last month end. Good news is current market allows gains in value beyond what most of us have ever seen. EZ leverage and high returns/beats all bonds currently for sure.

[Sunset]

Quote:

Originally Posted by DanP Sorry if I missed something in the earlier posts: if one is in a position of having enough assets and can secure an asset-backed LOC at a competitive rate, what is the advantage of changing that to a mortgage? I'm rusty on the topic but isn't mortgage interest still capped (which may or may not apply here) while the LOC interest would be treated as a deductible investment expense?

a 30 yr fixed mortgage rate won't change. Wouldn't a LOC rate continue to go up as interest rates rise, back in the 1980's interest was easily 15% or more.

[DanP]

Quote:

Originally Posted by Sunset a 30 yr fixed mortgage rate won't change. Wouldn't a LOC rate continue to go up as interest rates rise, back in the 1980's interest was easily 15% or more.

Yes, thanks, that makes sense. Just did not know if there were other benefits that I was not aware of.

[Katsmeow]

Quote:

Originally Posted by ERD50 As I mentioned up-stream, the key is to talk to the lender and find out what does qualify before you start providing any documentation to them. ...... Some might accept the IRA balance, I don't know. The people I talked to had to see the actual recurring cash flow and that it could be supported for some years (~ 3 IIRC). .

This was our experience 3 times in getting a mortgage or refinance. The person I was dealing with told me what income was needed beyond our SS income. Let's say it was $1500 a month. I would set up a recurring Monthly IRA withdrawal for that amount. I would make sure there had been one withdrawal from it before the application was done. Make the application, provide a document that I downloaded from Fidelity (or Vanguard) showing the recurring withdrawal. Provide bank statement showing that I had received one withdrawal. Loan granted.

Yes, they wanted to make sure you had enough money in that IRA to cover a period of time (I think 3 years but not entirely sure). OK, I just went and checked and Fannie Mae says needs to have enough for 3 years:

https://selling-guide.fanniemae.com/...nsion.20Income

[Winemaker]

My situation is the same as markos; they want to see regular systematic payments. We receive 2 pension checks and about $4500/month in rental income. It does not always come on the same day, and a lot of my folks pay in cash; because that's what a lot of
tax cheating landlord's demand. Mortgage underwriters hate/despise cash received on an irregular schedule. they asked us for 12 months of bank statements from every account we had. Checking, money market, tenant deposit accounts, ad nauseum.

[ERD50]

Quote:

Originally Posted by Winemaker My situation is the same as markos; they want to see regular systematic payments. We receive 2 pension checks and about $4500/month in rental income. It does not always come on the same day, and a lot of my folks pay in cash; because that's what a lot of tax cheating landlord's demand. Mortgage underwriters hate/despise cash received on an irregular schedule. they asked us for 12 months of bank statements from every account we had. Checking, money market, tenant deposit accounts, ad nauseum.

So it would be interesting if you could have avoided he "ad nauseum", by simply setting up a monthly w/d for the amount needed from your portfolio to your checking account.

In our case, it wasn't a retirement account, just our regular taxable portfolio. And since I just shuffled the money back later, I wasn't forced to sell anything either and take any tax hit.

-ERD50