How to qualify for a mortgage in retirement

[xlf11]

Hi all,
We are currently renting an apt. and plan to buy a primary residence single house out of state for warmer weather. Our SS + investment income is about $5k/m currently, but with total asset about $2.8mm (401k, IRA, roth, taxable and $200k cash for possible down payment). No any debt with 800+ credit scores. We are looking for upto $600k house in GA.

Our question is what's the best way to qualify for a mortgage without too much work around. Looks like we could:
1. Drawdown on retirement: say to setup a monthly withdraw like $5k/m for two (or more) months...
2. Asset depletion: like 70% of asset divided by 360m for a 30 year mortgage...

Anyone has done this in retirement especially recently? Pros and cons compared with regular mortgage app.? Any lenders to recommend?

Thank you in advance for any input!

 

[OldShooter]

When you shop the mortgage, ask these questions. I would start with credit unions in your new location, then move to smaller banks. Let them know they will be getting all your banking business after you move.

About 6 months ago we needed a construction loan but the easiest was to put a cash-out mortgage on our lake home. We just submitted our personal statement and filled out their forms, never had to do anything like what you suggest. Granted the bank regional president was a friend of DW's, but they resold the mortgage immediately so obviously the paperwork/qualification met the market standards.

 

[ERD50]

I'm in the process right now. I jumped through a bunch of hoops trying to explain what might count as 'income', then they wanted tax returns, etc, etc. Example, seems like the dividends from investments don't count as 'income' unless you can show a steady monthly withdraw. But I had them accumulate as cash, and then a credit card linked to that account was auto-paid using those divs. So it didn't look 'clean' and simple.

The only thing that seemed straightforward for them was DW's small monthly pension (we are not taking SS yet).

I could have saved myself some time/effort if I just did this:

1) Find out from them how much monthly income you need to qualify for the loan (they will have a factor, plus expenses may include property tax, HOA, insurance, etc). The factor is probably monthly income that is about 2x those house expenses.

2) Your SS income should be a simple monthly amount. Your investment income, maybe not. So just set up an auto-withdrawal on you portfolio in an amount that meets their requirement (minus your SS).

3) They wanted to know that the account I'm drawing from could support 3 years of withdrawals at that amount. So they asked for 2 months of statements. I'm not sure where 3 years comes from, it's a 30 year mortgage! But I guess that gets them far enough in they can foreclose if needed.

That should do it. Simple. Much of it makes no sense at all, but that is their rules and process. All you can do is play along.


I have decided to go through my CU. A broker didn't really come up with anything better - slightly lower points for the same rate, but other expenses were higher.

-ERD50

 

[clifp]

Hi all,

Our question is what's the best way to qualify a mortgage without too much work around. Looks like we could:
1. Drawdown on retirement: say to setup a monthly withdraw like $5k/m for two (or more) months...
2. Asset depletion: like 70% of asset divided by 360m for a 30 year mortgage...

Anyone has done this in retirement especially recently? Pros and cons compared with regular mortgage app.? Any lenders to recommend?

Thank you in advance for any input!

I've done this several times in retirement, with a slightly larger asset base, and similar income. Last time was last year where I did a $750K (max that is deductible) at 15 year. 1.875% loan.

While you can try to qualify conventionally, based on income. It is hard to do especially if you are looking at ~$475K loan for your $600K house.

They will use asset depletion to have you qualify for the loan. In addition, they will often, but not always, require you to set up a withdrawal from your IRA to get your income to debt ratio below 40%. You aren't required to maintain the IRA withdrawal, beyond a month or two.

It is important to understand that most mortgage brokers and most banks don't know how to do this. There are Fannie Mae, guidelines on how to do it, but I guess a lot of folks to don't read that far in the regulations, because only a small fraction of loans use this method. So you have to specifically ask for an asset depletion or asset back mortgage, and ask how many they've done in in the last year. If the number is zero or 1 run away.

In particular, stay away from AmeriSave, (whose name generally comes up as offering the lowest rates in most searches). I spent >$1K and a couple of months dealing with them.

I'll PM you a couple of names of brokers who I did work with if you'd like.

 

[ERD50]

....
While you can try to qualify conventionally, based on income. It is hard to do especially if you are looking at ~$475K loan for your $600K house. ....

So you have to specifically ask for an asset depletion or asset back mortgage, and ask how many they've done in in the last year. If the number is zero or 1 run away.
...

That was not my experience.

I specifically asked my CU about an asset depletion loan, they said they didn't do them.

But setting up withdrawals to meet the income requirement, and showing that the portfolio could support 3 years of those wd is all I needed.

I know, it sounds like semantics - what I did is essentially an asset depletion loan. But it wasn't the assets that clinched it, it was the monthly wd "income", and 3 years worth of assets.

It makes no sense, but I think to be able to sell the loan later, they need to check those boxes.

-ERD50

 

[Time2]

I can't speak to a mortgage but I recently got a HELOC. I sat down with the banker and said, I don't have a job and I have no income, I'd like to get a home equity loan. It came down to printing out all of our Vanguard account information, they weren't happy with the initial front page, I had to print out every account, IRA, Roth, SEP, Taxable account for both me and the wife. I don't recall that they even ask for 1040s.
I even counseled both bankers about FIRE movement, ER.0rg and MMM. One of them was very interested, the other was interested but had his sites on being self employed and in saving mode for that.

 

[Andre1969]

I've learned a few times over the years, that when it comes to mortgages and such, for whatever reason they seem focused more on your income than on your assets. And worse, they wanted the assets to be in something like CDs or an MMA, rather than stocks, mutual funds, or other things that could fluctuate in value.

Their rationale was that if the market crashed, the value of those stocks and mutual funds could go down in value, so they were too uncertain. But when I said, but I could theoretically lose my job six months after I close on a house and default on the mortgage, that didn't seem to be a concern to them.

Even in situations where I had the funds to pay cash for the house, several times over if needed, that just didn't seem to faze them. All they cared about was monthly income.

When I bought my house, they made me cough up a 25% down payment, rather than a 20%, because, according to my income, I was stretching to buy this house. Nevermind the fact that, at the time, I had the assets to pay cash for it, three times over.