Getting loans when retired

[dheb]

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.

Don't worry; you don't sound snooty.

I'm looking at retiring early next year. I have enough saved up to continue my current lifestyle longer than I'll live. That does not include the equity in my house, which is almost paid off. I'm looking at moving to another state. I'd rather take out a mortgage on the new house, and when I sell mine add that equity to my investments - that way I can grow that money and make more on it than I would having it tied up in a non-liquid asset.

 

[Out of Steam]

We had no difficulty refinancing our small mortgage earlier this spring, as we qualified on my pension alone. Once the bank saw that, they showed no interest in reviewing our retirement account draws.

 

[davidfin]

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.

I consider the monthly transfers from my savings and investment accounts to be income. Plus I’ve been with the CU for 20 years with a steady deposit history over that entire time. If asked about income I just list employer as retired and income as the sum of my transfers. Never been an issue with the CU or CC companies especially with a credit score north of 800.

 

[scottpush]

+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.

+2 I previously quit my job in 2003 and had almost $1million in assets but could only get a loan for about $75k to buy a house. it was based on my various income streams that were pretty low. I ended up buying 3 houses with cash! Yes, it makes absolutely no sense at all.

 

[daylatedollarshort]

I consider the monthly transfers from my savings and investment accounts to be income. Plus I’ve been with the CU for 20 years with a steady deposit history over that entire time. If asked about income I just list employer as retired and income as the sum of my transfers. Never been an issue with the CU or CC companies especially with a credit score north of 800.

Does your CU require loans to follow Fannie Mae and Freddie Mac rules for qualifying? Or do they just hang on to the loans themselves? If they don't intend to sell the loans they can have their own requirements.

 

[pb4uski]

.... 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

While I know banks do this and I suspect because it results in "income" that is shown on a tax return so under whatever rules are written it allows them to count it.... at the same time is it silly... Roth conversions are just moving money from one pocket to another pocket if done tax free... but in most cases is it also paying money out of a third pocket.

I've also heard that you can set up an automatic monthly tax-deferred account withdrawal for whateve income you need about 6 months before you get the loan and then kill it a few months after the loan is funded.

 

[Koolau]

While I know banks do this and I suspect because it results in "income" that is shown on a tax return so under whatever rules are written it allows them to count it.... at the same time is it silly... Roth conversions are just moving money from one pocket to another pocket if done tax free... but in most cases is it also paying money out of a third pocket.

I've also heard that you can set up an automatic monthly tax-deferred account withdrawal for whateve income you need about 6 months before you get the loan and then kill it a few months after the loan is funded.

Yeah, I completely agree that it's silly. How could a bank think that LOWERING ones assets should qualify for a loan? JUST before this idea occurred to the nice young lady "helping" us, I'd had enough and had to step outside the bank to cool down (it was 68 degrees inside and 85 outside - you figure it out.) So, I walked around the block, thinking, and then returned. THERE on the FRONT DOOR of the bank was this BIG SIGN.

BAD CREDIT, NO CREDIT - WE CAN HELP!

Dirty, miserable, rotten, racherfraching double clutchers!! I WAS hot. I stormed back into the bank and was just ready to call the lady some choice names when she suggested the 1040 "scheme." So DW and I left to dig out the forms. That was the beginning of our "salvation." Honestly, I lost all faith in the banking system at that point. But we did get the loan, so YMMV.

 

[Buckeye]

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.

That's exactly how we got our mortgage in 2015. We were both retired with no steady monthly income (just lumpy withdrawals) but substantial savings. I talked to lenders for almost 2 years who all said, "No monthly income, no mortgage" before I found one (a Costco referral, best mortgage guy ever!) who advised us we just needed an auto withdrawal from our investments to support the loan amount we wanted. So easy! The VA loan closed in 5 weeks and we stopped the auto withdrawals from Schwab immediately after the loan closed.

We had to provide 2 years of tax returns but I think we had only 2 auto withdrawals before we got approved for the mortgage. Neither one of us had worked since 2011.

 

[SecondCor521]

I scanned all the comments, so if I'm repeating someone I apologize.

OP, if you like your current HELOC and both lenders are amenable, you can look into resubordinating it to your new mortgage. Your new mortgage wants to be in first lending position on your house, and resubordination is some paperwork where your existing HELOC agrees to let your new mortgage have first position.

It seems easier to me than canceling the existing HELOC and applying for another one, but YMMV.

Also, on the W2R stuff, W2R was talking about applying for a new loan in retirement. Some of the responses were talking about carrying an existing loan into retirement. Two different things.

I've been FIREd 5 years and simply haven't had any large expenses. But my plan is sort of like W2R's - if I want something I'll just buy it with my own money. I can understand and agree that there can be situations where taxes are better if the cash flow is evened out, though, so maybe with large expenses it would make sense.

 

[Finance Dave]

Interesting discussion. Currently DW is FIREd and I"m "semi-FIREd" (self-employed but self-limited to 200 hours/year). We opened a HELOC about a year before FIRE so that we'd have access to cash. We did borrow a few thousand on it once just to make sure it worked ok, and set up automatic repayments to see that worked ok too...all went well.

But we are in a situation like some have described, where most of our NW is in tax-deferred accounts. And if we move and buy a new home, we may need bridge money until we sell the current home...the HELOC hopefully will help with this.

We are taking irregular withdrawals from wife's TIRA (she's past 59 1/2, I'm not), so I guess we could set that up on regular payments...but we're still trying to manage the ACA cliff (notwithstanding the exception for this year and next), so we'd prefer not to do that quite yet.

I'll stay tuned to see what happens with the OP on this one.

 

[Jim59]

Taking out my last loan just less than a year to ER. I’ll drop to PT soon and will get the loan based on current salary. I will pay it off over 5 years and use it for a big ticket purchase.

 

[daylatedollarshort]

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

We just closed on our refinancing and it went great. No problem using the monthly transfer from an IRA to a checking account as "income" from Fidelity for qualifying. We set up the transfer using an online form at Fidelity and it only took a few minutes. And we can shut it down now that the loan closed. The loan was through NBKC Bank in the Costco mortgage program. There are a couple of other lenders in the Costco program we bailed on either for being shady or totally disorganized, but the NBKC application, approval and closing process all went smoothly.

 

[aza455]

We just closed on our refinancing and it went great. No problem using the monthly transfer from an IRA to a checking account as "income" from Fidelity for qualifying. We set up the transfer using an online form at Fidelity and it only took a few minutes. And we can shut it down now that the loan closed. The loan was through NBKC Bank in the Costco mortgage program. There are a couple of other lenders in the Costco program we bailed on either for being shady or totally disorganized, but the NBKC application, approval and closing process all went smoothly.

How far in advance (months/weeks/days) before settlement did you set up and start your Fidelity “income” withdrawals? How many withdrawals did you have to make before canceling?

 

[daylatedollarshort]

How far in advance (months/weeks/days) before settlement did you set up and start your Fidelity “income” withdrawals? How many withdrawals did you have to make before canceling?

I think we set up the transfers about a month ago and allowed a week or so lead time. We provided a copy of the form we filled out for the monthly transfer and a pdf from Fidelity showing the deposit into checking when we turned in our loan documents and we were approved without any questions about it. It only took about a month from loan application to signing the closing document. They approved the loan with just the one monthly transfer.