mortgage applications , rental applications

perinova

perinova

Full time employment: Posting here.
Joined
Apr 18, 2006
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534
In the FIREd stage how is the mortgage application or rental application handled? Typically in the working stage you need a proof of income coming from an employer.
Do you provide proof of asset? Have you had any previous experience either rental or mortgage app being rejected?
 
perinova said:
In the FIREd stage how is the mortgage application or rental application handled? Typically in the working stage you need a proof of income coming from an employer.
Do you provide proof of asset? Have you had any previous experience either rental or mortgage app being rejected?
Click to expand...

Before I got into being a home owner(at age 50), I wanted to get 2 apts in the same building , one for me and the bride and one for my elderly mother. We were going to buy the apts, they were co-ops. Turns out my mother who in my world is well off would not have been approved by the board. She did not have enough income. I would have had to put my name on her deed.
 
I submitted for a loan pre-approval today. I could tell this is highly unusual to get a loan when there is plenty of asset to cover for the purchase price. Also I was trying to give as least amount of assets as possible to qualify, maybe I am doing it wrong.

My thinking is to get a loan with only 5% down since I was never a home owner. This way I can keep as much assets invested. Yes there is the additional PMI but the income from investments should well cover that.

Any opinion? I feel I doing this by the seat of my pants :)
 
perinova said:
I submitted for a loan pre-approval today. I could tell this is highly unusual to get a loan when there is plenty of asset to cover for the purchase price. Also I was trying to give as least amount of assets as possible to qualify, maybe I am doing it wrong.

My thinking is to get a loan with only 5% down since I was never a home owner. This way I can keep as much assets invested. Yes there is the additional PMI but the income from investments should well cover that.

Any opinion? I feel I doing this by the seat of my pants :)
Click to expand...

Thats if the markets dont crash. Do the safe thing, put at least 20 % down, take a 15 year mortgage.
 
perinova said:
I submitted for a loan pre-approval today. I could tell this is highly unusual to get a loan when there is plenty of asset to cover for the purchase price. Also I was trying to give as least amount of assets as possible to qualify, maybe I am doing it wrong.

My thinking is to get a loan with only 5% down since I was never a home owner. This way I can keep as much assets invested. Yes there is the additional PMI but the income from investments should well cover that.

Any opinion? I feel I doing this by the seat of my pants :)
Click to expand...



I would not pay PMI. Your investment earnings may or may not cover this. I'd put 20% down but I'd do a 30 year mortgage. You can always pay it down sooner if you want, but 30 years gives you more flexibility. Last time I did a mortgage transaction, 15 year rates weren't that much less than 30 year. YMMV
 
Scuba said:
I would not pay PMI. Your investment earnings may or may not cover this. I'd put 20% down but I'd do a 30 year mortgage. You can always pay it down sooner if you want, but 30 years gives you more flexibility. Last time I did a mortgage transaction, 15 year rates weren't that much less than 30 year. YMMV
Click to expand...
+1.
Payment is not only cheaper w/o PMI, but it is easier to qualify without the PMI hoops to jump through.

I agree with the 30 year vs 15 year mortgage.
 
OP, if your lender has a problem with "big assets, no/low cash flow", change lenders. There are plenty out there who would love to have your application in front of them.
 
Thanks for all the replies.

I am gearing toward a 30y mortgage since I can always do prepayment if I can down the road and shortent he life of the mortgage.

Still thinking about the 5% vs 20% down-payment. I had always wanted to do 20% in the past but since I am low on cash I am hesitating selling assets.
A quick calculation on a 400k home: The 5% vs 20% difference is about 60k and the PMI is 2k/year.
The PMI will stay constant and later disappear but the 60K will provide a 2k every year at a WR of 3.3%, increasing in time.
 
Years ago we had PMI for a few years. Once lender confirmed quick appraisal value was 20% more than what we owed they agreed to drop the PMI. We may have made some additional principal payments that helped speed things up.
 
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jazz4cash said:
There is a formula to convert retirement account assets to income available to lenders but it may depend on type of mortgage. I looked at it once and I think about 2 pct/yr could be applied as income.
https://www.google.com/amp/amp.kipl...-your-nest-egg-to-qualify-for-a-mortgage.html
Click to expand...

2% is highway robbery. it is basically a debt to asset ratio of 0.2 or lower.

Because of the hints I got on this forum, I'm exploring getting my final line of credit before retiring. Told the banker I'm going to retire roughly $300K of other debt, but I want you to raise my line by $200K. Not likely to happen she tells me. I think a smarter banker is in my future.
 
If you use a Mortgage Broker rather than a bank you will find many options for < 20% down and NO PMI. You do not need to pay PMI if your credit is good even if you don't want to invest a huge down payment. Broker look across multiple lenders.
 
Luck_Club said:
2% is highway robbery. it is basically a debt to asset ratio of 0.2 or lower.



Because of the hints I got on this forum, I'm exploring getting my final line of credit before retiring. Told the banker I'm going to retire roughly $300K of other debt, but I want you to raise my line by $200K. Not likely to happen she tells me. I think a smarter banker is in my future.
Click to expand...



I'm not following your logic wrt "highway robbery". 4 pct/yr is widely used as guideline for converting assets to income. If you're using half your income for mortgage that's a pretty high ratio.
 
I am/was working with a direct lender which looked at my assets but they are unable to give me an approval letter without a CPA looking at my financial situation and writing a letter that I can draw $X/month from the assets.

Any recommendation to who would be used to those kind of financial situations?
- "big assets, no/low cash flow"
- mortgage brokers are better than direct lenders since they have more options?
 
CPA? Sounds like a CYA letter for the lender. Not necessarily something I would use a CPA for. They would need to be someone that specializes or willing to cite some well known standard (like 4% SWR) or use the Freddie Mac guideline I referenced above. Will lender advise the amount required for approval so you can back into the calculation?
 
jazz4cash said:
CPA? Sounds like a CYA letter for the lender. Not necessarily something I would use a CPA for. They would need to be someone that specializes or willing to cite some well known standard (like 4% SWR) or use the Freddie Mac guideline I referenced above. Will lender advise the amount required for approval so you can back into the calculation?
Click to expand...

They are using the 43% rule of housing expenses (mortgage+property tax) to income rule. Dividends and Cap Gain do not cover that amount so I would have to sell shares every year (on those taxable accounts) to generate income. The tax deferred account left aside of course until later.

It looks like a good idea to move to a retirement home prior to retiring. Not the other way around. I wanted to qualify for the mortgage purely using investments but am now considering taking a job to show income.
 
Are you comfortable with generating income (e.g. Selling assets) to cover the payments with 20% down for 30 yrs? Does the income requirement exceed 2% of assets (the Freddie Mac rule)? 43% seems extraordinarily high. I recall ratios around 30% for piti and ~40% for ALL monthly expenses (home+ revolving debt, other loans etc). I would find another lender at least for comparison.

Edit: Is the rate competitive or is this a hard money loan?
 
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perinova said:
I am/was working with a direct lender which looked at my assets but they are unable to give me an approval letter without a CPA looking at my financial situation and writing a letter that I can draw $X/month from the assets.

Any recommendation to who would be used to those kind of financial situations?
- "big assets, no/low cash flow"
- mortgage brokers are better than direct lenders since they have more options?
Click to expand...

I'm a retired CPA and doubt that you will be able to find a CPA who would write such a letter.... it's really not their wheelhouse. Ask them to show you letter that they have received like that with client information redacted... they won't... they are blowing smoke.
 
Here is example of the formula I linked above:

The formula takes 70% of qualifying assets, subtracts what will be needed for down payment and closing costs and divides the remainder by 360, the number of months in a standard loan, to arrive at a monthly income used to determine the applicants' maximum payment and loan amount.


Also see: Is Now the Time to Get That Mortgage?>>
HSH.com, the mortgage-information firm, says, for example, that a borrower with $1 million in assets could count $700,000. After taking out $10,000 for closing costs and dividing by 360, the borrower could show $1,917 in monthly income.
 
pb4uski said:
I'm a retired CPA and doubt that you will be able to find a CPA who would write such a letter.... it's really not their wheelhouse. Ask them to show you letter that they have received like that with client information redacted... they won't... they are blowing smoke.
Click to expand...



I agree!
 
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