Real Estate Issues in Retirement

[mrfeh]

I can pay cash for a home, but was hoping to take advantage of lower interest rates and keeping maximum liquidity.

If you are debt free now, I don't know why you'd want to take on a mortgage in retirement.

We are in a similar position and plan on buying our next home (wherever that may be) for cash.

 

[harley]

If you are debt free now, I don't know why you'd want to take on a mortgage in retirement.

We are in a similar position and plan on buying our next home (wherever that may be) for cash.

And so begins another religious war.

 

[Luck_Club]

And so begins another religious war.

 

[meierlde]

Wow

I'm still driving my 2004 Honda [love my car!] But thinking ahead I have wondered if I should finance my next car [using a dealer's low interest rate incentive] or just buy it outright with cash. Now I wonder if I will even have the option to finance.

.

Again join a credit union and get the loan there before you go to the dealer.

 

[joeea]

There are some college towns that interest me for a permanent summer home location. I had been planning to rent there first while scouting out the local real estate, but recently I've read comments that it's much, much easier to get a mortgage before retirement, than after.

I can pay cash for a home, but was hoping to take advantage of lower interest rates and keeping maximum liquidity.

It makes sense to take advantage of pretty much historically low interest rates. Although, if you are attempting to buy in a very competitive sellers' market, offering cash can often get you to the top of the list.

It can indeed be more difficult to get a mortgage after retirement. Lenders want to know that you can afford the mortgage payments. Unfortunately, they mostly look at your income when determining your ability to pay.

If you are working with a financial planner, they should be willing to help you here. They can write a letter to the lender indicating your ability to pay the mortgage out of your income stream that your investments provide.

 

[Just_Steve]

I re-fied after retirement with no issues, all they wanted was whats call an award letter stating pension amount and duration.

 

[Luck_Club]

I re-fied after retirement with no issues, all they wanted was whats call an award letter stating pension amount and duration.

Pensions are income.

The issue is banks won't engage in asset based lending.

 

[CRLLS]

This discussion comes at a good time. As of January, we will have no work "income" and start living off SS, a very small annuity, and our retirement accounts. I think I'll just set up $X,XXX transfer every month from our IRAs/401Ks. Anything we don't actually spend, I'll just use to pay taxes on a Roth Conversion at the end of the year. That should show steady "income" should we decide to relocate in a year or so.

 

[43210]

Google "Asset Depletion Mortgage"
Here's a relevant article
http://www.kiplinger.com/article/re...-your-nest-egg-to-qualify-for-a-mortgage.html
(I have no personal experience, but have also wondered about this exact situation.)

This article does imply that you can get a mortgage with zero income, just based on assets, but check out the formula and rules.

^ Read the article I posted. No income required.

Once again ...

!!!!!!!!!!!!!!! NO INCOME REQUIRED !!!!!!!!!!!!!!!
!!!!!!!!!!!!!!! NO INCOME REQUIRED !!!!!!!!!!!!!!!
!!!!!!!!!!!!!!! NO INCOME REQUIRED !!!!!!!!!!!!!!!
!!!!!!!!!!!!!!! NO INCOME REQUIRED !!!!!!!!!!!!!!!
!!!!!!!!!!!!!!! NO INCOME REQUIRED !!!!!!!!!!!!!!!
!!!!!!!!!!!!!!! NO INCOME REQUIRED !!!!!!!!!!!!!!!
!!!!!!!!!!!!!!! NO INCOME REQUIRED !!!!!!!!!!!!!!!
!!!!!!!!!!!!!!! NO INCOME REQUIRED !!!!!!!!!!!!!!!

 

[RunningBum]

If you are debt free now, I don't know why you'd want to take on a mortgage in retirement.

We are in a similar position and plan on buying our next home (wherever that may be) for cash.

Read post #15.

 

[harley]

Once again ...

!!!!!!!!!!!!!!! NO INCOME REQUIRED !!!!!!!!!!!!!!!
!!!!!!!!!!!!!!! NO INCOME REQUIRED !!!!!!!!!!!!!!!
!!!!!!!!!!!!!!! NO INCOME REQUIRED !!!!!!!!!!!!!!!
!!!!!!!!!!!!!!! NO INCOME REQUIRED !!!!!!!!!!!!!!!
!!!!!!!!!!!!!!! NO INCOME REQUIRED !!!!!!!!!!!!!!!
!!!!!!!!!!!!!!! NO INCOME REQUIRED !!!!!!!!!!!!!!!
!!!!!!!!!!!!!!! NO INCOME REQUIRED !!!!!!!!!!!!!!!
!!!!!!!!!!!!!!! NO INCOME REQUIRED !!!!!!!!!!!!!!!

I read the article, and it does say

To make use of these rules, Gumbinger advises asking several different lenders whether they are using the Freddie Mac guidelines. Finding a lender "shouldn't be too hard since any lender selling mortgages to Freddie Mac can make this option available to their customers under our guidelines," says German. He says that about 2,000 lenders nationwide do business with Freddie Mac, including all of the major national and regional lenders.

However, that doesn't mean all the lenders are willing to do it. As you can see, the quote says they "can" do this. Elsewhere in the article they use "may" a lot. You might get lucky, you might not. It's not a slam dunk.

However, just the fact that Freddie Mac has guidelines in place is good news. There was nothing like this available when I was trying to refi back in 2010-2011.

 

[bobandsherry]

How to Get a Mortgage Once You Are Retired

Drawdown from retirement method. For retirees who are following a plan where they are now retired but may be delaying the start of Social Security or pension income, the most favorable option is doing to be using a “drawdown on assets” method of determining income. Here’s how it works.

As long as the borrower is 59 ½ the lender can use recent withdrawals from retirement accounts as proof of income. For example, assume recent bank statements show withdrawals of $4,500 per month from an IRA (the lender needs to see withdrawals for at least 2 months).

This $4,500 would be considered monthly income. Sometimes the lender will need a letter from the financial planner or financial institution confirming these withdrawal amounts.

Asset depletion method. For retirees with a lot of invested assets, the asset depletion method of determining income may work well.

With this method, the lender starts with the current value of financial assets. Then they subtract any mount that will be used for the down payment and closing costs. They take 70% of the remainder and divide by 360 months.

For example, assume someone has $1 million in financial assets. They are going to use $50,000 for a down payment. That leaves $950,000. Take 70% of that, which is $665,000 and divide by 360. The result, $1,847, is the monthly income used to qualify the borrower.

Or course any other sources of income such as pension income, Social Security, or monthly annuity income would also be counted in addition to income using the methods above.

 

[bobandsherry]

Use Your Nest Egg to Qualify for a Mortgage

 

[karen1972]

Well lets just say its WAY easier to get a mortgage while your working.. I retired in 2015, went to get a mortgage in 2016. I went through my credit union and basically they were willing to take my pension (only because I had it put into my bank account with them for more than 1 year). They said they may have been willing to take dividend income but again I would have had to have it distributed for more than a year, which I didn't because I just rolled it over.

So my honey who had lost his job and hadn't worked in 6 months but had landed a gig, handed in a pay check stub that he had been working at for only 2 months and they took that over going through the hassle of trying to underwrite based on dividends. Just saying.. basically they took his tax returns for the last 2 years, took the current pay stub said, yeh that would be about the same or more income so we will approve based on that dollar amount. I think eventually they would have wrote my loan, but why go through the hassle.

 

[jazz4cash]

I read the article, and it does say However, that doesn't mean all the lenders are willing to do it. As you can see, the quote says they "can" do this. Elsewhere in the article they use "may" a lot. You might get lucky, you might not. It's not a slam dunk.

However, just the fact that Freddie Mac has guidelines in place is good news. There was nothing like this available when I was trying to refi back in 2010-2011.

Yeah I asked about this type of approval at my credit union and I could tell it was not something they were accustomed to. That's the extent of my personal experience. Many leaders get squishy if you are not doing a cookie cutter loan so it's best to find someone familiar with this process. It lets you use approx 2 pct of your nest egg as income for getting the loan.

I posted that article in another thread and it seemed like no one paid attention to it then either. I noticed many references to the asset depletion mortgage are several years old so I suspect it is not used very often. Hope we get more 1st hand experience since is a good resource for ER'ers

 

[Luck_Club]

Well lets just say its WAY easier to get a mortgage while your working.. I retired in 2015, went to get a mortgage in 2016. I went through my credit union and basically they were willing to take my pension (only because I had it put into my bank account with them for more than 1 year). They said they may have been willing to take dividend income but again I would have had to have it distributed for more than a year, which I didn't because I just rolled it over.

So my honey who had lost his job and hadn't worked in 6 months but had landed a gig, handed in a pay check stub that he had been working at for only 2 months and they took that over going through the hassle of trying to underwrite based on dividends. Just saying.. basically they took his tax returns for the last 2 years, took the current pay stub said, yeh that would be about the same or more income so we will approve based on that dollar amount. I think eventually they would have wrote my loan, but why go through the hassle.

I think most lenders are lazy.

They just want to look at W2 and say yep 35% covers it. When you have a complicated situation, Self employed, dividends that you don't spend, rents, gifts, etc they don't want to truly analyze the tax return to get to your free cash flow.

I'm currently going through the process right now. My new loan combining two loans will be lower payments then the sum of the two, but they are making me jump through the hoops. Just responded earlier this evening explaining that I actually have 2X the income required if they add back in depreciation, carry forward losses, and soft discretionary expenses.

 

[DEC-1982]

Getting a loan while working is DEFINITELY easier.

The issue with getting it after retirement and using an asset based loan is that you need to put 30% down, if I understand this correctly. That 30% down payment can be a good chunk of cash, and most of us keep a limited amount of cash.

Right now, of course, selling equities for cash might turn out to be a great move, but who knows for sure?

 

[45th Birthday]

The issue with getting it after retirement and using an asset based loan is that you need to put 30% down, if I understand this correctly. That 30% down payment can be a good chunk of cash, and most of us keep a limited amount of cash.

You do not understand this correctly. There is no requirement for a 30% downpayment.

 

[DEC-1982]

You do not understand this correctly. There is no requirement for a 30% downpayment.

The article mentioned earlier is very dated (Oct 2013), so perhaps what it says is wrong, or more likely, the requirements have changed since then.

https://www.kiplinger.com/article/r...-your-nest-egg-to-qualify-for-a-mortgage.html

"

Under these rules, generally known as "asset depletion" or "asset dissipation" rules, you will need a substantial down payment, says Ron Wivagg, national sales manager for Prosperity Mortgage, in Chantilly, Va. You'll need at least a 30% down payment if you're buying a new home or at least 30% equity if you are refinancing. "This helps us manage the risks involved in making this option available," says German.

"

 

[45th Birthday]

The article mentioned earlier is very dated (Oct 2013), so perhaps what it says is wrong, or more likely, the requirements have changed since then.

https://www.kiplinger.com/article/r...-your-nest-egg-to-qualify-for-a-mortgage.html

"

Under these rules, generally known as "asset depletion" or "asset dissipation" rules, you will need a substantial down payment, says Ron Wivagg, national sales manager for Prosperity Mortgage, in Chantilly, Va. You'll need at least a 30% down payment if you're buying a new home or at least 30% equity if you are refinancing. "This helps us manage the risks involved in making this option available," says German.

"

Sorry, I thought you were conflating the 30% haircut on the investment portfolio with the required down payment. But, I can tell you from personal experience with two of these loans (one in 2014 and one in 2015) that this was not the case.

 

[jazz4cash]

The article mentioned earlier is very dated (Oct 2013), so perhaps what it says is wrong, or more likely, the requirements have changed since then.

https://www.kiplinger.com/article/r...-your-nest-egg-to-qualify-for-a-mortgage.html

"

Under these rules, generally known as "asset depletion" or "asset dissipation" rules, you will need a substantial down payment, says Ron Wivagg, national sales manager for Prosperity Mortgage, in Chantilly, Va. You'll need at least a 30% down payment if you're buying a new home or at least 30% equity if you are refinancing. "This helps us manage the risks involved in making this option available," says German.

"

My take on the quote you pasted from the linked article is that the 30% equity down payment is stipulated by that particular lender, but not necessarily a blanket requirement.

I've been searching for more recent info on this type of funding and there is not much out there. Here is one lender that has a program similar to what is being discussed and I think it also requires 75% LTV. A 25-30% equity requirement seems reasonable to me, especially compared to the alternative of paying cash.
https://www.nshomefunding.com/products/asset-depletion-program/

 

[DEC-1982]

Sorry, I thought you were conflating the 30% haircut on the investment portfolio with the required down payment. But, I can tell you from personal experience with two of these loans (one in 2014 and one in 2015) that this was not the case.

Thank you, "45th Birthday". It's good to know 30% down payment is not a real requirement, at least not for all lenders. As always, experience beats theory or in my case, reading.

 

[Andre1969]

I'm still w*rking, but ran into a similar problem over the summer, when I tried to get prequalified for a mortgage. At the time, I owed about $100K on my current house, and the monthly payment was around $1847. It had been an HELOC that reached the end of its draw period, and converted to a 10-year mortgage, so the monthly payment was comparatively high.

Anyway, ideally I want to be able to buy a new house, without it being dependent on selling the current house. That way I could move at my own pace, and could hold out for a better price on the current house, rather than possibly get talked into a fire-sale price, just to get out of it, for fear of losing out on what might be my dream home.

The mortgage company, however, had an issue with me carrying that current mortgage. Even though I only owed $100K, they were focusing on the monthly payment. I asked them, what if I payed it down? Their response is that would change nothing, because while that would reduce the principal and get it paid off sooner, it wouldn't change the monthly payment.

Nevermind the fact that I had the assets to pay off the mortgage, plus pay cash for just about any house I was in the market for. They didn't care about that, only that monthly payment.

I guess it'll soon be a moot point though, because with the way the market took off, I decided to pay down the mortgage anyway, and should have it wiped out completely within the next two months. Still, it makes me a bit worried about my chances of getting a mortgage once I'm retired. So, my current plan is to hold out and keep the j*b at least until I've landed a new house, with a mortgage.

 

[jazz4cash]

I'm still w*rking, but ran into a similar problem over the summer, when I tried to get prequalified for a mortgage. At the time, I owed about $100K on my current house, and the monthly payment was around $1847. It had been an HELOC that reached the end of its draw period, and converted to a 10-year mortgage, so the monthly payment was comparatively high.

Anyway, ideally I want to be able to buy a new house, without it being dependent on selling the current house. That way I could move at my own pace, and could hold out for a better price on the current house, rather than possibly get talked into a fire-sale price, just to get out of it, for fear of losing out on what might be my dream home.

The mortgage company, however, had an issue with me carrying that current mortgage. Even though I only owed $100K, they were focusing on the monthly payment. I asked them, what if I payed it down? Their response is that would change nothing, because while that would reduce the principal and get it paid off sooner, it wouldn't change the monthly payment.

Nevermind the fact that I had the assets to pay off the mortgage, plus pay cash for just about any house I was in the market for. They didn't care about that, only that monthly payment.

I guess it'll soon be a moot point though, because with the way the market took off, I decided to pay down the mortgage anyway, and should have it wiped out completely within the next two months. Still, it makes me a bit worried about my chances of getting a mortgage once I'm retired. So, my current plan is to hold out and keep the j*b at least until I've landed a new house, with a mortgage.

I kinda remember when you were going through this awhile back. Bummer. Note that at least some of the asset depletion loans being discussed here are for > 59.5. I think the idea is that you can easily draw down the nest egg for income w/o penalty. I also noticed the term "liquid" assets being used so I wonder if the definition of liquid might vary from one lender to another.

 

[Andre1969]

I kinda remember when you were going through this awhile back. Bummer. Note that at least some of the asset depletion loans being discussed here are for > 59.5. I think the idea is that you can easily draw down the nest egg for income w/o penalty. I also noticed the term "liquid" assets being used so I wonder if the definition of liquid might vary from one lender to another.

Unfortunately, I have a few years still before I hit 59.5. Roughly 11.75 of them. It almost seems like they stack the deck against you, to KEEP you w*rking!