Buying house in retirement??

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albireo13
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Buying house in retirement??

Post by albireo13 » Tue Sep 25, 2018 4:24 am

We are < 5yrs from retirement and would like to downsize soon. We want to stay in southern NH area. We will still have to carry a mortgage unfortunately. This will hopefully be our last move.
If we move before retirement, our new location options will have to consider our commuting needs. We already both have 1hr and more commutes each way ... ugh.

If we wait to retire, we don't have to plan for commuting and our town options open up quite a bit. Some more desirable towns would now be an option, some with lower tax rates and some closer to the seacoast.

So, we are going back and forth ... buy before we retire? ... or wait until after we leave our jobs?

One issue I see about waiting is obtaining a mortgage in retirement. How difficult is that? Is it hard to obtain a mortgage once you no longer work and are living off of savings and SS?

michaeljc70
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Re: Buying house in retirement??

Post by michaeljc70 » Tue Sep 25, 2018 6:08 am

Yes, it may be harder to get a mortgage. Your SS would likely have to provide enough income for the mortgage and your other expenses. Investment income may or may not count. Capital gains won't be counted as they are irregular and dividends and interest may be discounted as it varies. RMDs likely wouldn't be counted if you haven't started them and had them on your tax return for at least a year.

I would wait until you are around a year or so out from retirement and then try to downsize. That will limit commuting problems and mortgage problems (assuming you close before you retire). I wouldn't cut it too close as you have to sell your house and find another one to buy.

adamthesmythe
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Re: Buying house in retirement??

Post by adamthesmythe » Tue Sep 25, 2018 12:12 pm

> Your SS would likely have to provide enough income for the mortgage

No. What I hear is that your regularly occurring income would have to justify the mortgage. So SS + pension + annuity income + dividends + (possibly) scheduled withdrawals.

michaeljc70
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Re: Buying house in retirement??

Post by michaeljc70 » Tue Sep 25, 2018 1:07 pm

adamthesmythe wrote:
Tue Sep 25, 2018 12:12 pm
> Your SS would likely have to provide enough income for the mortgage

No. What I hear is that your regularly occurring income would have to justify the mortgage. So SS + pension + annuity income + dividends + (possibly) scheduled withdrawals.
They said "living off of savings and SS".

3feetpete
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Re: Buying house in retirement??

Post by 3feetpete » Tue Sep 25, 2018 3:06 pm

An Asset Depletion Loan may be the answer if you have substantial amounts in IRA's and 401k's. Do an internet search to learn the rules and find lenders that provide them

jpdion
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Re: Buying house in retirement??

Post by jpdion » Wed Sep 26, 2018 1:48 pm

We sort of ran into this issue a few years ago. We were able to build a "second home" while working based on our income. While our home was being built we put our existing home on the market. When our existing home sold, and our new home was built and closed, we moved and I retired and my wife continued to work. The new mortgage was based on our income of record during the loan process, and included the info on our existing mortgage. We were not asked to speculate as to our future plans by the bank based on our ages or that we were building in Florida.

bikechuck
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Re: Buying house in retirement??

Post by bikechuck » Wed Sep 26, 2018 2:55 pm

albireo13 wrote:
Tue Sep 25, 2018 4:24 am
We are < 5yrs from retirement and would like to downsize soon.
One issue I see about waiting is obtaining a mortgage in retirement. How difficult is that? Is it hard to obtain a mortgage once you no longer work and are living off of savings and SS?
My wife and I retired last year and we up sized from our small 1,700 sq ft two story home with the master bedroom upstairs and the laundry in the basement to a 2,300 sq ft courtyard home built on a slab with the master bedroom and laundry on the first floor. As it turned out we closed on the sale of our old home before closing on the new home so we did not need a mortgage.

However I had contacted my bank (PNC bank) to see if we could get a mortgage if we needed to (i.e. if our old house did not sell before we had to close on the new one) even though we no longer have jobs, neither of us has a pension and neither of us have started SS. PNC told us they would impute an income for us based on the size of our portfolio and that they would give us a mortgage.

So some banks will give you a mortgage in retirement if you need one even if you do not have current income.

ubermax
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Re: Buying house in retirement??

Post by ubermax » Wed Sep 26, 2018 3:42 pm

Check with the loan officer at your local bank - DW and I are both retired and inquired about this a couple years ago - initially a senior teller at our local branch said that income alone had to support a new mortgage along with other existing debt - but upon digging further with a loan specialist at their home office we were told that current income along with our assets could qualify us for a loan - someone above mentioned an asset depletion loan , they're probably called different things depending on the bank .

We are in CT and were looking at property in RI near the ocean - our bank wouldn't consider an out of state mortgage , not your case , and we decided not to pursue further with RI banks - in our case our mortgage expense would have been a large portion of our total expense and we decided to put the idea on hold for now .

Bottom line don't assume you won't qualify just because you're retired - ask questions and dig a little - Good Luck !!!!

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Meg77
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Re: Buying house in retirement??

Post by Meg77 » Wed Sep 26, 2018 3:49 pm

Banker here. All banks that originate mortgages have to document and verify a customer's ability to repay a consumer mortgage loan. This is a federal regulatory requirement under the Ability to Repay (ATR) rule which is outlined in the Dodd-Frank act.

Per the ATR rule, banks MUST consider and address these 8 factors in mortgage underwriting.
1. Current or reasonably expected income or assets (other than the value of the property securing the loan), which the member will rely on to repay the loan;
2. Current employment status (if you rely upon employment income when assessing a member’s ability to repay the loan);
3. Monthly mortgage payment for the covered mortgage loan (calculated using the introductory or fully indexed interest rate, whichever is higher, and based on monthly, fully amortizing payments that are substantially equal);
4. Monthly payments on simultaneous loans secured by the same property;
5. Monthly payments for property taxes and insurance you require the member to buy, and other costs related to the property such as homeowners association fees or ground rent;
6. Debts, alimony, and child support obligations;
7. Monthly debt-to-income ratio or residual income (calculated using the total of all of the mortgage and non-mortgage obligations listed above, as a ratio of gross monthly income); and
8. Credit history.

If you have enough income from social security and taxable dividends and interest and other investment income to qualify, then you're fine. But withdrawals from IRAs won't count until you've taken them for 2+ years; capital gains won't count in general; and income earned inside a retirement account that doesn't show up on your tax return won't count.

It's possible for retired people - or self-employed people who had a bad year, or lottery winners with no income, or executives taking a year off, or trust fund kids or anyone else without regular income - to get a mortgage. But it's a lot more difficult to establish ability to repay without income. In general you probably need to a) have several times the mortgage amount in investments at minimum and b) go through a bank or credit union that is going to hold the mortgage and service it rather than sell it as a conventional/conforming mortgage loan.

FHA mortgages, for example, are guaranteed by the Federal Housing Administration if you default. Other conforming loans are sold to Fannie Mae or Freddie Mac. So those organizations establish very specific rules - most importantly front end and back end ratios (two different debt-to-income ratios) that have to be met in order to get approved. They aren't going to mess around with making an exception to their income ratios, even if you do have a million bucks in checking and could buy the house in cash. You have to fit in the underwriting box, period. It's mostly automated and goes through all kinds of systems so it would take a lot of extra effort for people to get involved and fight for an exception and try to document enough assets to overcome a violation of the income rules.

However, banks that hold their own loans don't have to worry about anyone else's underwriting standards (though they are still bound by ATR and Dodd Frank and tons of other regs). They can take the time to do manual underwriting and actually weigh the risks of approving a loan with a big income exception and document the assets and the relationship and the reason they are willing to do the loan anyway. The downside of those loas is that the bank isn't going to sell them - so you're not going to get a crazy 30 year long fixed interest rate that is effectively subsidized by the federal government. No bank in their right mind would fix the rate for that long on a loan they can't immediately sell off. They can't afford that kind of interest rate risk. So you'll likely end up with an ARM and will also likely have to put down a solid 20%.
"An investment in knowledge pays the best interest." - Benjamin Franklin

jpdion
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Re: Buying house in retirement??

Post by jpdion » Wed Sep 26, 2018 4:05 pm

Our bank still is carrying our loan, which is 30 years fixed at 3.8%, 20% down. This was for a "second home" in Florida to which I retired a couple of months after closing, selling our previous home. DW continued to work remotely from the new home for a couple of years until I took SS, balance has been from my pension and withdrawals from our TIRAs. We were lucky to have enough income to qualify for having two mortgages.

grandmacassie
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Re: Buying house in retirement??

Post by grandmacassie » Wed Sep 26, 2018 6:39 pm

My Mom settled on a new house on her 90th birthday, 5 years ago. She still lives in it, alone. She did not try to get a conventional mortgage, but took a loan against the value of her taxable portfolio from her brokerage. The loan was about $250K. Once she sold her old house, she paid off the portfolio loan. No mortgage application/credit hassles. I'm sure there are downsides to such a plan, but it worked for her.

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dm200
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Re: Buying house in retirement??

Post by dm200 » Wed Sep 26, 2018 6:46 pm

When you apply for a mortgage loan, you will need to state (and document) your current income. In addition, you will probably need to state whether or not that income will continue for some period of time in the future (such as two years).

b4real
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Re: Buying house in retirement??

Post by b4real » Wed Sep 26, 2018 7:58 pm

We purchased in a new city after retiring and before selling our old house. They wanted to see ongoing income that met the ratios and it didn't matter that our assets covered many times more than the mortgage. We established an automatic withdrawal from an IRA to meet the required amount. After closing we stopped the withdrawal.

sailaway
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Re: Buying house in retirement??

Post by sailaway » Wed Sep 26, 2018 8:34 pm

Have you considered the middle ground? Start looking for a house in the last year leading up to retirement.

michaeljc70
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Re: Buying house in retirement??

Post by michaeljc70 » Wed Sep 26, 2018 8:57 pm

Meg77 wrote:
Wed Sep 26, 2018 3:49 pm
Banker here. All banks that originate mortgages have to document and verify a customer's ability to repay a consumer mortgage loan. This is a federal regulatory requirement under the Ability to Repay (ATR) rule which is outlined in the Dodd-Frank act.

Per the ATR rule, banks MUST consider and address these 8 factors in mortgage underwriting.
1. Current or reasonably expected income or assets (other than the value of the property securing the loan), which the member will rely on to repay the loan;
2. Current employment status (if you rely upon employment income when assessing a member’s ability to repay the loan);
3. Monthly mortgage payment for the covered mortgage loan (calculated using the introductory or fully indexed interest rate, whichever is higher, and based on monthly, fully amortizing payments that are substantially equal);
4. Monthly payments on simultaneous loans secured by the same property;
5. Monthly payments for property taxes and insurance you require the member to buy, and other costs related to the property such as homeowners association fees or ground rent;
6. Debts, alimony, and child support obligations;
7. Monthly debt-to-income ratio or residual income (calculated using the total of all of the mortgage and non-mortgage obligations listed above, as a ratio of gross monthly income); and
8. Credit history.

If you have enough income from social security and taxable dividends and interest and other investment income to qualify, then you're fine. But withdrawals from IRAs won't count until you've taken them for 2+ years; capital gains won't count in general; and income earned inside a retirement account that doesn't show up on your tax return won't count.

It's possible for retired people - or self-employed people who had a bad year, or lottery winners with no income, or executives taking a year off, or trust fund kids or anyone else without regular income - to get a mortgage. But it's a lot more difficult to establish ability to repay without income. In general you probably need to a) have several times the mortgage amount in investments at minimum and b) go through a bank or credit union that is going to hold the mortgage and service it rather than sell it as a conventional/conforming mortgage loan.

FHA mortgages, for example, are guaranteed by the Federal Housing Administration if you default. Other conforming loans are sold to Fannie Mae or Freddie Mac. So those organizations establish very specific rules - most importantly front end and back end ratios (two different debt-to-income ratios) that have to be met in order to get approved. They aren't going to mess around with making an exception to their income ratios, even if you do have a million bucks in checking and could buy the house in cash. You have to fit in the underwriting box, period. It's mostly automated and goes through all kinds of systems so it would take a lot of extra effort for people to get involved and fight for an exception and try to document enough assets to overcome a violation of the income rules.

However, banks that hold their own loans don't have to worry about anyone else's underwriting standards (though they are still bound by ATR and Dodd Frank and tons of other regs). They can take the time to do manual underwriting and actually weigh the risks of approving a loan with a big income exception and document the assets and the relationship and the reason they are willing to do the loan anyway. The downside of those loas is that the bank isn't going to sell them - so you're not going to get a crazy 30 year long fixed interest rate that is effectively subsidized by the federal government. No bank in their right mind would fix the rate for that long on a loan they can't immediately sell off. They can't afford that kind of interest rate risk. So you'll likely end up with an ARM and will also likely have to put down a solid 20%.
This.

Getting any type of loan/mortgage and getting a conventional/conforming loan are not the same thing. The terms on non-conventional (aka conforming) loans are not nearly as favorable.

This may be a side issue, but why do you need a loan in retirement if downsizing?

freebeer
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Re: Buying house in retirement??

Post by freebeer » Thu Sep 27, 2018 12:40 pm

I think it's a bit of a yellow caution flag if you feel you "need" to carry a mortgage, unless you have a lot of pension+SS income relative to assets (some of which you could use to purchase a home for cash). Renting might be more prudent, and/or perhaps could you downsize a bit more than planned to fit within your retirement assets and income.

But if you do need to go the mortgage route, why not plan to buy in your last year+ of working, and suck up a long commute (/ short-term renting a pied-à-terre near your workplace) for those months in exchange for easy qualification for mortgage and, especially, lower interest rates and costs by being able to take advantage of conventional financing?

ubermax
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Re: Buying house in retirement??

Post by ubermax » Sun Sep 30, 2018 11:04 am

Our local bank will consider RMDs in their underwriting for a new loan if " we could show them that they would continue for at least three years" - I'm not sure what they mean by this ? - a couple of possibilities (1) they want to see evidence that the RMDs are coming from an investment that is both large enough to support three years of withdrawals and safe enough, like a money market account, to be unaffected by market and interest rate changes or (2) they only want to see that the RMDs are coming from an account(s) that are currently large enough to support the three years of payments - and what if you need to withdraw more than the RMDs , would the same rule apply or a different one ?


This might not be a concern for the OP but I think it's a question whose answer is worth knowing because there are probably many retirees who are top heavy with tax deferred investments - I plan to ask at our local bank for a clarification but perhaps Meg77 could offer some insight in the meantime ?

Tamales
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Re: Buying house in retirement??

Post by Tamales » Sun Sep 30, 2018 1:42 pm

Meg77 wrote:
Wed Sep 26, 2018 3:49 pm
Banker here. All banks that originate mortgages have to document and verify a customer's ability to repay a consumer mortgage loan. This is a federal regulatory requirement under the Ability to Repay (ATR) rule which is outlined in the Dodd-Frank act.

Per the ATR rule, banks MUST consider and address these 8 factors in mortgage underwriting.
1. Current or reasonably expected income or assets (other than the value of the property securing the loan), which the member will rely on to repay the loan;
2. Current employment status (if you rely upon employment income when assessing a member’s ability to repay the loan);
3. Monthly mortgage payment for the covered mortgage loan (calculated using the introductory or fully indexed interest rate, whichever is higher, and based on monthly, fully amortizing payments that are substantially equal);
4. Monthly payments on simultaneous loans secured by the same property;
5. Monthly payments for property taxes and insurance you require the member to buy, and other costs related to the property such as homeowners association fees or ground rent;
6. Debts, alimony, and child support obligations;
7. Monthly debt-to-income ratio or residual income (calculated using the total of all of the mortgage and non-mortgage obligations listed above, as a ratio of gross monthly income); and
8. Credit history.

Very informative post Meg77. Is the bank required to disclose to you, how they answered those 8 questions?
Do they have to prepare some official form answering those 8 questions and submit to some federal agency?

If (and I think this question could be applicable to the OP too) your current home is paid off but not sold (but you do plan to sell it) and is also in a different state than the prospective new home, do banks have some formula for current appraised value in the local market x 80% (or some other reduction they consider safe) that adds to the assets they will consider as part of the mortgage qualification for the new home?

If the current home is inside a revocable living trust, is the new lender going to require that you remove it (assuming there is some way they assign an asset value to it)?

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Meg77
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Re: Buying house in retirement??

Post by Meg77 » Thu Oct 04, 2018 10:56 am

Tamales wrote:
Sun Sep 30, 2018 1:42 pm
Meg77 wrote:
Wed Sep 26, 2018 3:49 pm
Banker here. All banks that originate mortgages have to document and verify a customer's ability to repay a consumer mortgage loan. This is a federal regulatory requirement under the Ability to Repay (ATR) rule which is outlined in the Dodd-Frank act.

Per the ATR rule, banks MUST consider and address these 8 factors in mortgage underwriting.
1. Current or reasonably expected income or assets (other than the value of the property securing the loan), which the member will rely on to repay the loan;
2. Current employment status (if you rely upon employment income when assessing a member’s ability to repay the loan);
3. Monthly mortgage payment for the covered mortgage loan (calculated using the introductory or fully indexed interest rate, whichever is higher, and based on monthly, fully amortizing payments that are substantially equal);
4. Monthly payments on simultaneous loans secured by the same property;
5. Monthly payments for property taxes and insurance you require the member to buy, and other costs related to the property such as homeowners association fees or ground rent;
6. Debts, alimony, and child support obligations;
7. Monthly debt-to-income ratio or residual income (calculated using the total of all of the mortgage and non-mortgage obligations listed above, as a ratio of gross monthly income); and
8. Credit history.

Very informative post Meg77. Is the bank required to disclose to you, how they answered those 8 questions?
Do they have to prepare some official form answering those 8 questions and submit to some federal agency?

If (and I think this question could be applicable to the OP too) your current home is paid off but not sold (but you do plan to sell it) and is also in a different state than the prospective new home, do banks have some formula for current appraised value in the local market x 80% (or some other reduction they consider safe) that adds to the assets they will consider as part of the mortgage qualification for the new home?

If the current home is inside a revocable living trust, is the new lender going to require that you remove it (assuming there is some way they assign an asset value to it)?
The bank does not specifically disclose all of these things to you in a 1-8 list like this, but they do have to disclose specifically and separately your credit scores and information (#8) as well as your appraisal. However, you can see how all this information is aggregated on your URLA - Uniform Residential Loan Application. You fill out a version of this in order to apply, often online these days. But then the underwriter will adjust it based on what they can actually verify - they'll add debts from your credit report and remove income they can't document, and they'll input all the projected mortgage payments and taxes, etc. You'll have to sign a copy of the final version they use as part of your early disclosures and at closing. All the info 1-7 is in there, though you may have to read carefully to find it if you aren't used to looking at those forms.

And yes, the URLA is a specialized form that all mortgage lenders must provide to the federal government, along with other information about the race/gender/ethnicity of borrowers. The government tracks how many loans are extended to people of different minority groups as well as in various census tracks and at various income levels to hold banks accountable to Fair Lending rules and other rules governing how many loans to low income borrowers we have to make. We also have to prove we documented all the items 1-8; for example if there is a credit report variation in name or address, we have to explain that we verified the borrowers' identities. If there are collections items or late payments we have to justify doing the loan anyway based on some factors. If the income ratios are out of line we have to say why we are doing it - because of high liquidity balances or a low LTV for example. Lots of stuff goes into it, and the auditors pour over that stuff on an annual basis.

Banks dont' really care about your total assets, so if a paid off home is for sale it won't usually be noted in the underwriting specifically as a pending liquidity addition at least for a conventional mortgage loan. A private bank or credit union may make a note mentioning pending liquidity event, but it doesn't impact the rate or ratios or anything. However if you ahve a mortgage on a property that is listed for sale (must be listed), oftentimes the income ratios will be run both ways - with and without the other mortgage. However we have to assume it will never sell since many times that can and does happen. So you'll still need to qualify based on the higher of the debt service ratios usually. But they'll be more willing to make an exception if that ratio is too high as long as you ahve enough income or liquidity to service both loans for 6-12 months or so. Different banks probably have different rules about how to count that or how much cushion they want to see.

As for the revocable living trust, a private banker like me or a credit union that holds the loan won't care. Those lenders don't care if loans are in a personal name or trust or LLC usually. But for a conventional mortgage you might have to move it to your name - I know you would have to if it's in an LLC. I'm honestly not sure though; if the SSN on the trust is the same as your SSN, it might be OK. This may vary by state too for all I know.
"An investment in knowledge pays the best interest." - Benjamin Franklin

marielake
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Re: Buying house in retirement??

Post by marielake » Thu Oct 04, 2018 11:35 am

I am in process of buying a second home while in retirement. Pension and SS are adequate to cover mortgage so not reliant on retirement savings for monthly payments; am reliant on funds for down payment. Mortgage broker said there is no problem with getting a loan--hopefully this continues to be true.

Aflyfishnnut
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Re: Buying house in retirement??

Post by Aflyfishnnut » Thu Oct 04, 2018 5:59 pm

Just closed on our second home purchase since retiring in Jan. 2016. We are selling the current home but have not as yet sold. No problem getting another mortgage. They'll take all the interest they can get !
BTW, Same credit union for both mortgages and homes are in different states.

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Re: Buying house in retirement??

Post by goodenyou » Fri Oct 05, 2018 4:15 pm

I just purchased land with the idea of building my retirement home in a few years. I will be downsizing from a very large 2 story home to a one story that will be half the size. The kids will be out of college or close by then. I haven’t had a mortgage in many years. I have enough to pay cash for my next home independent of the first home sale, but I am reluctant to be in the 2 house club. The upkeep on homes is tremendous, especially in Texas. If the current housing market in our area persists, I may be forced to sell at a huge loss to free up the capital and get out from under the taxes and upkeep. Thankfully, it is a small percentage of my assets. I don’t want to carry a mortgage into retirement.
"Ignorance more frequently begets confidence than does knowledge" | "The best years you have left are the ones you have right now"

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goodenyou
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Re: Buying house in retirement??

Post by goodenyou » Fri Oct 05, 2018 4:39 pm

Meg77 wrote:
Wed Sep 26, 2018 3:49 pm
Banker here. All banks that originate mortgages have to document and verify a customer's ability to repay a consumer mortgage loan. This is a federal regulatory requirement under the Ability to Repay (ATR) rule which is outlined in the Dodd-Frank act.

Per the ATR rule, banks MUST consider and address these 8 factors in mortgage underwriting.
1. Current or reasonably expected income or assets (other than the value of the property securing the loan), which the member will rely on to repay the loan;
2. Current employment status (if you rely upon employment income when assessing a member’s ability to repay the loan);
3. Monthly mortgage payment for the covered mortgage loan (calculated using the introductory or fully indexed interest rate, whichever is higher, and based on monthly, fully amortizing payments that are substantially equal);
4. Monthly payments on simultaneous loans secured by the same property;
5. Monthly payments for property taxes and insurance you require the member to buy, and other costs related to the property such as homeowners association fees or ground rent;
6. Debts, alimony, and child support obligations;
7. Monthly debt-to-income ratio or residual income (calculated using the total of all of the mortgage and non-mortgage obligations listed above, as a ratio of gross monthly income); and
8. Credit history.

If you have enough income from social security and taxable dividends and interest and other investment income to qualify, then you're fine. But withdrawals from IRAs won't count until you've taken them for 2+ years; capital gains won't count in general; and income earned inside a retirement account that doesn't show up on your tax return won't count.

It's possible for retired people - or self-employed people who had a bad year, or lottery winners with no income, or executives taking a year off, or trust fund kids or anyone else without regular income - to get a mortgage. But it's a lot more difficult to establish ability to repay without income. In general you probably need to a) have several times the mortgage amount in investments at minimum and b) go through a bank or credit union that is going to hold the mortgage and service it rather than sell it as a conventional/conforming mortgage loan.

FHA mortgages, for example, are guaranteed by the Federal Housing Administration if you default. Other conforming loans are sold to Fannie Mae or Freddie Mac. So those organizations establish very specific rules - most importantly front end and back end ratios (two different debt-to-income ratios) that have to be met in order to get approved. They aren't going to mess around with making an exception to their income ratios, even if you do have a million bucks in checking and could buy the house in cash. You have to fit in the underwriting box, period. It's mostly automated and goes through all kinds of systems so it would take a lot of extra effort for people to get involved and fight for an exception and try to document enough assets to overcome a violation of the income rules.

However, banks that hold their own loans don't have to worry about anyone else's underwriting standards (though they are still bound by ATR and Dodd Frank and tons of other regs). They can take the time to do manual underwriting and actually weigh the risks of approving a loan with a big income exception and document the assets and the relationship and the reason they are willing to do the loan anyway. The downside of those loas is that the bank isn't going to sell them - so you're not going to get a crazy 30 year long fixed interest rate that is effectively subsidized by the federal government. No bank in their right mind would fix the rate for that long on a loan they can't immediately sell off. They can't afford that kind of interest rate risk. So you'll likely end up with an ARM and will also likely have to put down a solid 20%.
Reading this reminds me of the line, “Banks will lend you money when you prove to them that you don’t need it”.
"Ignorance more frequently begets confidence than does knowledge" | "The best years you have left are the ones you have right now"

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Van-Guard23
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Re: Buying house in retirement??

Post by Van-Guard23 » Sat Oct 06, 2018 3:54 pm

goodenyou wrote:
Fri Oct 05, 2018 4:15 pm
I just purchased land with the idea of building my retirement home in a few years. I will be downsizing from a very large 2 story home to a one story that will be half the size. The kids will be out of college or close by then. I haven’t had a mortgage in many years. I have enough to pay cash for my next home independent of the first home sale, but I am reluctant to be in the 2 house club. The upkeep on homes is tremendous, especially in Texas. If the current housing market in our area persists, I may be forced to sell at a huge loss to free up the capital and get out from under the taxes and upkeep. Thankfully, it is a small percentage of my assets. I don’t want to carry a mortgage into retirement.
My wife and I, both early retirees, relocated from Hawaii to Central Texas earlier this year. We opened a New Construction Loan with a large credit union known all throughout Central Texas as this afforded us more flexibility as we weren't going to list our house in HI for sale until after we've closed on the lot in Texas.

The credit union approved the new construction loan under favorable terms with the knowledge that we weren't selling the house until later. Fast forward to three days before closing on the lot in Texas and the credit union hemmed and hawed and started telling us that since we hadn't sold the HI house and our debt to income ratio (because of the open mortgage in HI as well as the lot in Texas) was unsupportable and as such (even though we had assets to pay for the lot and house, albeit in stocks and mutual funds) they cannot support the loan unless we increased our cash to close amount. The original cash to close was under $100k, then it was increased to around $200k, which was briefly raised once again to $300k until my wife became physically ill after talking to them and I went off on them. Needless to say, the cash to close came back down to $200k with a lower than planned loan amount and higher rate. We had to break a few CDs and incurred Early Withdrawal Penalties (EWPs) to come up wit the cash to close amount.

We've sold the house in HI (fairly quickly, I might add) and just made the first draw payment to the builder a couple of weeks back. We are actually not using the loan to pay the builder but using proceeds from the sale of the HI home and our own cash to do so, avoiding additional interests on the new construction loan. The credit union,however, is still obligated to come out and inspect progress of the home construction

Lesson learned...for retirees, all the bank cares about is that debt to income ratio (or as someone else noted, the borrower's ability to repay) and not the rest of your assets even if they show that you can afford to pay cash for the house/lot.
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