Mortgage Loan for Asset Rich but Limited Income Retirees

[Ian S]

Most of my partner's and my assets are in various types of retirement vehicles. We will need a loan for a new home we expect to buy later this year. We know there are so-called asset depletion mortgages and wonder if anyone here has experience with such either good or bad.

 

[FlaGator]

I got my mortgage directly from the bank I have done business with for over 30 years. Rate and terms were very competitive and the documentation requirements were what I expected - tax returns and account statements.

 

[Ginny]

We qualified for the loan by setting up regular withdrawals from my IRA. My loan officer told us what amount we needed in order to qualify. My low cost financial company had a way to set up these payments online and obtain the letter that my lender needed. The withdrawal only had to show up in my checking account for one month, then I canceled it.

 

[karen1972]

Most of my partner's and my assets are in various types of retirement vehicles. We will need a loan for a new home we expect to buy later this year. We know there are so-called asset depletion mortgages and wonder if anyone here has experience with such either good or bad.

I have an asset based loan and I'm paying almost a point more than I should be for the "privilege". I had to shop for a non Fannie/Freddie place and thus paying for it. If you qualify for Freddie you should get a rate more inline and have more options with whom to get your loan. There is always someone willing to lend, if you are willing to pay for it. According to various cash flow calculators even at the jacked up rates, my money will last 8 years longer by taking out the loan vs paying in cash so I sucked it up.

What I was told is Fannie only counted accounts which you didn't have penalties to withdraw so ignored my 401k/tIRA as I wasn't 59 1/2. Freddie would consider them but use the RMD tables from the IRS to convert it to "income" and then use 28% of that.

So at 46 years old my RMD factor comes to a SWR of 2.64% of which only 28% of it can be used for mortgage. Of course, there is so many flaws in that logic but it is what is and wasn't enough for the house I wanted. The older you are the better that number becomes so you'd have to look up the Life Expectancy tables to determine your factor and see if that would give you enough else you may be shopping brokers rather than standard institutions.

 

[FreeBear]

I have an asset based loan and I'm paying almost a point more than I should be for the "privilege". I had to shop for a non Fannie/Freddie place and thus paying for it. If you qualify for Freddie you should get a rate more inline and have more options with whom to get your loan. There is always someone willing to lend, if you are willing to pay for it. According to various cash flow calculators even at the jacked up rates, my money will last 8 years longer by taking out the loan vs paying in cash so I sucked it up.

What I was told is Fannie only counted accounts which you didn't have penalties to withdraw so ignored my 401k/tIRA as I wasn't 59 1/2. Freddie would consider them but use the RMD tables from the IRS to convert it to "income" and then use 28% of that.

So at 46 years old my RMD factor comes to a SWR of 2.64% of which only 28% of it can be used for mortgage. Of course, there is so many flaws in that logic but it is what is and wasn't enough for the house I wanted. The older you are the better that number becomes so you'd have to look up the Life Expectancy tables to determine your factor and see if that would give you enough else you may be shopping brokers rather than standard institutions.

Karen thanks for the detailed comments. Appreciate your perspective and that of everyone else who has managed to get a mortgage in retirement. Basically, these experiences tend to jive with a couple of other threads over the years: possible, but a PITA and potentially more expensive than when w*rking.

These headaches are a big reason why I just don't move to somewhere warmer, given the miserable winter weather here. That, and the fact that warmer places that I can afford tend to be way too hot in the summer!

My mortgage allows us to hold enough after-tax investments to somewhat manage income for significant ACA subsidies until at least one of us hits medicare. If ACA subsides disappear, then I'd be more tempted to buy a place for cash and just move.

Anyone buy a place for cash, and THEN get a HELOC to pull money out or at least have the option?

 

[ExFlyBoy5]

Anyone buy a place for cash, and THEN get a HELOC to pull money out or at least have the option?

We did that with our last house, but I was still employed...so a different scenario. I think it would be easier to qualify as long as you kept the LTV fairly low. We had the HELOC for about 5 years, but never drew on it. The entire application/underwriting/funding process was much easier than what a traditional loan would entail.

Current house was also paid for in cash but we haven't done the HELOC this time. We figured that since we didn't need it last time around, it's not something we would need (most likely).

 

[Mdlerth]

Lesson learned: earned income is the most widely understood

...Basically, these experiences tend to jive with a couple of other threads over the years: possible, but a PITA and potentially more expensive than when w*rking.

This perspective guided DW and me when we bought our retirement house last year, while we still had W2 income. They ran a credit score but never asked us about other assets; it was all about salary, down payment and existing debt service. The mortgage process for us was WAY easier than some of the horror stories I had read from retirees who had plenty of resources but no "real" income to qualify for a loan.

It made me wonder about how stovepiped the banking industry is. The same company that finances mortgages has another division managing IRAs and investments, but they obviously don't talk to each other.

Anyone buy a place for cash, and THEN get a HELOC to pull money out or at least have the option?

When we do retire (OMY) we'll sell the convenient-for-commuting house and pay off the note on the retirement house, but will definitely open a new HELOC on the new place just to have liquidity options.

 

[Looking4Ward]

I'm actually dealing with this today as I work with two different lenders to determine how much of a mortgage I can qualify for.

Both of their underwriters will only consider the average of my last two tax returns. I've explained to them that those will only show dividends and capital gains distributions which I intentionally keep low to avoid additional taxes since I am currently drawing from my after-tax investments and am not touching my IRA (which would show up dollar for dollar as income).

They wouldn't even consider the fact that more than twice the amount on those tax returns has been showing up in my checking account. Nor did they consider the fact that my liquid assets are five times the mortgage amount.

I joked with one of them that maybe I should go ahead and get another high paying job in order to qualify and then quit the day after closing. He didn't seem to get it.

 

[ExFlyBoy5]

I joked with one of them that maybe I should go ahead and get another high paying job in order to qualify and then quit the day after closing. He didn't seem to get it.

Yeah, but for that income to count you would need to keep the j*b for about two years...

 

[Gill]

We qualified for the loan by setting up regular withdrawals from my IRA. My loan officer told us what amount we needed in order to qualify. My low cost financial company had a way to set up these payments online and obtain the letter that my lender needed. The withdrawal only had to show up in my checking account for one month, then I canceled it.

I did the same thing although I never took a single payment. The bank was happy with the letter saying I was withdrawing $10,000 a month. Cancelled the scheduled payment as soon as the loan was approved. Worked like a charm.
Gill

 

[Katsmeow]

Several years ago we got a loan where part of the income to qualify for it was IRA income. This past year we got another loan where part of the income to qualify for it was IRA income (the rest was SS). I had to set up a regular monthly IRA draw and provide a copy of the statement showing that it was a regular draw. It really wasn't a problem.

 

[Ian S]

We qualified for the loan by setting up regular withdrawals from my IRA. My loan officer told us what amount we needed in order to qualify. My low cost financial company had a way to set up these payments online and obtain the letter that my lender needed. The withdrawal only had to show up in my checking account for one month, then I canceled it.

That's pretty much the plan a local mortgage broker has suggested will work. So I'm getting a pre-qualify letter on that basis. The plan is not to move until around year's end but I want to be able to make an offer if the right opportunity presents itself. I also don't want to be in the position of making an offer contingent on selling our existing paid-off home.