New Home - finance logistics when retired

[obsessed]

Now that the real estate market is returning to some sort of normalcy other than prices, I will be in the market to buy a new house in the next 3-9 months. It could be either new construction or existing.

My current home is paid for and my next home will probably cost anywhere between $200k to $400k more than my current home's value. I would prefer not to put my current home on the market until I've purchased and moved into my new home.

Here's the dilemma. My plan was to pay cash using cash and fixed income assets from my taxable accounts but rising house prices and a couple years of spending have tightened that up a bit so I'm looking at options to finance the purchase if need be.

I've come up with a few options as follows:

1) Sell equities out of taxable accounts. This would incur some capital gains which I can keep in the 15% bracket but would reduce the amount of Roth conversions I would do that year.

2) Withdraw funds from my IRA which is heavy in fixed income.

3) Get a home equity loan on my existing house. I'm not sure what the fees would be for this. I would pay this off when I sell.

4) Get a HELOC on my existing house. Again fees? Interest rates look a little higher but I could get it in place early and only tap into it if I need it.

5) Get a traditional mortgage on the new house and pay it off when the old house sells. It seems like this would have the highest amount of fees and hassle. I also wouldn't be a cash buyer for what that's worth.

I've heard that getting a new mortgage is difficult when retired even if you have a decent NW. Does this apply to home equity and HELOC's as well?

My gut feeling is that option one will pencil out the best but am interested in others perspectives. Have I missed anything.

 

[travelover]

You can withdraw money from an IRA and replace it within 60 days with no tax liability. Feeling lucky?

 

[daylatedollarshort]

It really depends on the lending institution whether you can get a mortgage or home equity loan easily in retirement. Some lenders won't count asset income at all. One credit union only looked at tax returns from the previous 2 years. Many lenders we talked to would count assets if you set up monthly "income", a regular transfer from a retirement or saving account to checking. Then you can kind of make your income whatever you want it to be to meet their qualifying ratios. As soon as the loan closes you can cancel the transfer.

 

[Ian S]

It really depends on the lending institution whether you can get a mortgage or home equity loan easily in retirement. Some lenders won't count asset income at all. One credit union only looked at tax returns from the previous 2 years. Many lenders we talked to would count assets if you set up monthly "income", a regular transfer from a retirement or saving account to checking. Then you can kind of make your income whatever you want it to be to meet their qualifying ratios. As soon as the loan closes you can cancel the transfer.

+1 It worked for us!

 

[DrRoy]

There are mortgage loans with no points on closing. The rate will be higher, but this may be better for a shorter interval.

 

[Badger]

Trying to understand tax code always make my head hurt and the changes in the past few years has made it worse.
Just curious. What is the tax rule if you are living in your home then buy another house with "cash" and then later sell the first home? Do you still get to claim any of the money that exceeds the capital gains exemption up to $250k/500k from the first home has gone into the cost of the second home even if it is after the fact?

Cheers!

 

[Philliefan33]

Trying to understand tax code always make my head hurt and the changes in the past few years has made it worse.
Just curious. What is the tax rule if you are living in your home then buy another house with "cash" and then later sell the first home? Do you still get to claim any of the money that exceeds the capital gains exemption up to $250k/500k from the first home has gone into the cost of the second home even if it is after the fact?

Cheers!

That’s not a thing, no matter what order you buy/sell. When you sell a home that has been your primary residence for two of the past five years, you get a $250K ($500K if MFJ) exemption on the LT capital gains. If you have more than that you pay LT capital gains tax, regardless of what you do with the proceeds.

 

[yhoomajor]

In this specific scenario where you want to bridge time-gap (funds availability until house is sold), imo, HELOC is a good option. Shop around, fees can be minimal to few hundreds bucks.

 

[daylatedollarshort]

+1 It worked for us!

Worked for us, too, despite the transfer counting as "income" as defying basic logic and common sense. But is seems to meet Fannie Mae guidelines.

 

[Out of Steam]

We had no difficulty getting our current mortgage post-retirement, but we met the required income ratio from my pension alone.

I can envision the possibility that we would need to do the same thing. My inclination would be a retirement withdrawal for any amount that wouldn't be paid off by sale of our current house, and an equity line of credit for the rest.

 

[euro]

In this specific scenario where you want to bridge time-gap (funds availability until house is sold), imo, HELOC is a good option. Shop around, fees can be minimal to few hundreds bucks.

That would be my choice as well. Cheap and pretty easy

 

[Montecfo]

Heloc

 

[copyright1997reloaded]

Another option (maybe): Get a margin loan on your non-tax-deferred investment account.

If you go this route, strongly consider one of the lower cost (to borrow) brokers, e.g. Interactive Brokers.

Pro's: No origination/recording fee, in fact no mortgage.
Con's: Need to make sure an adverse market event (ha ha) doesn't cause a margin call.

Pay off margin after you sell your current house.

 

[jazz4cash]

You can withdraw money from an IRA and replace it within 60 days with no tax liability. Feeling lucky?

Clever.