Buying a home without income

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remomnyc
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Joined: Mon Jan 04, 2016 4:27 pm

Buying a home without income

Post by remomnyc » Sat Jun 15, 2019 2:44 pm

Prices are finally coming down, so we're looking to buy again. I retired last year and am living on my dividends and interest. We are pre-approved for the mortgage amount. Our assets are 4x the price of the place we want to buy after we put 60% down. We ran into an issue with the co-op board, in that it does not count dividends and interest as income. Without them, we do not meet the 25% debt-income ratio.

I think my options are as follows: (1) Offer all "cash" by using a pledge loan from my brokerage account and finance with a mortgage post-closing (risk that board does not approve mortgage); (2) Pay all cash by selling stocks and incur capital gains taxes at 15%; again, try to finance post-closing; (3) Create a 6-year SEPP from IRA to meet 25% debt-income ratio and pay 24% ordinary income taxes; switch from amortization method to RMD post-closing to reduce withdrawal amount; (4) Continue renting. Is there another strategy that I am missing? I don't want to buy a condo (too expensive) or single family home (too much work). What should I do?

michaeljc70
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Re: Buying a home without income

Post by michaeljc70 » Sat Jun 15, 2019 3:08 pm

You've touched on why co-ops are usually quite a bit cheaper than condos. They control who you can sell it to. I would be concerned that 1) and 2) might raise an issue with the co-op board. I'd check into that if you choose one of those.

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Watty
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Re: Buying a home without income

Post by Watty » Sat Jun 15, 2019 4:20 pm

remomnyc wrote:
Sat Jun 15, 2019 2:44 pm
I retired last year and am living on my dividends and interest. We are pre-approved for the mortgage amount. Our assets are 4x the price of the place we want to buy after we put 60% down. We ran into an issue with the co-op board, in that it does not count dividends and interest as income. Without them, we do not meet the 25% debt-income ratio.
You math is confusing, adding some real numbers would help.
remomnyc wrote:
Sat Jun 15, 2019 2:44 pm
(2) Pay all cash by selling stocks and incur capital gains taxes at 15%; again, try to finance post-closing;
You would also need to consider your state taxes but the 15% capital gains tax rate would only be on the capital gains, not the entire amount of stock you sold. For example if you sold $100K in stock and have $50,000 in capital gains then at 15% you would pay $7,500 in capital gains taxes.

If you were able to get a $100K mortage instead at 4% then you would pay $4,000 in interest the first year. By the second year you would have paid more in interest than the capital gains tax.

That is oversimplified but I don't see why you don't just pay cash and then not finance and then enjoy living without a mortage payment.

rkhusky
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Re: Buying a home without income

Post by rkhusky » Sat Jun 15, 2019 5:25 pm

Can you set up an automatic monthly withdrawal and count that as income?

jminv
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Re: Buying a home without income

Post by jminv » Sat Jun 15, 2019 5:30 pm

remomnyc wrote:
Sat Jun 15, 2019 2:44 pm
Prices are finally coming down, so we're looking to buy again. I retired last year and am living on my dividends and interest. We are pre-approved for the mortgage amount. Our assets are 4x the price of the place we want to buy after we put 60% down. We ran into an issue with the co-op board, in that it does not count dividends and interest as income. Without them, we do not meet the 25% debt-income ratio.

I think my options are as follows: (1) Offer all "cash" by using a pledge loan from my brokerage account and finance with a mortgage post-closing (risk that board does not approve mortgage); (2) Pay all cash by selling stocks and incur capital gains taxes at 15%; again, try to finance post-closing; (3) Create a 6-year SEPP from IRA to meet 25% debt-income ratio and pay 24% ordinary income taxes; switch from amortization method to RMD post-closing to reduce withdrawal amount; (4) Continue renting. Is there another strategy that I am missing? I don't want to buy a condo (too expensive) or single family home (too much work). What should I do?
Find a co-op board that will cooperate?

TropikThunder
Posts: 1539
Joined: Sun Apr 03, 2016 5:41 pm

Re: Buying a home without income

Post by TropikThunder » Sat Jun 15, 2019 5:48 pm

remomnyc wrote:
Sat Jun 15, 2019 2:44 pm
Prices are finally coming down, so we're looking to buy again. I retired last year and am living on my dividends and interest. We are pre-approved for the mortgage amount. Our assets are 4x the price of the place we want to buy after we put 60% down. We ran into an issue with the co-op board, in that it does not count dividends and interest as income. Without them, we do not meet the 25% debt-income ratio.

I think my options are as follows: (1) Offer all "cash" by using a pledge loan from my brokerage account and finance with a mortgage post-closing (risk that board does not approve mortgage); (2) Pay all cash by selling stocks and incur capital gains taxes at 15%; again, try to finance post-closing; (3) Create a 6-year SEPP from IRA to meet 25% debt-income ratio and pay 24% ordinary income taxes; switch from amortization method to RMD post-closing to reduce withdrawal amount; (4) Continue renting. Is there another strategy that I am missing? I don't want to buy a condo (too expensive) or single family home (too much work). What should I do?
I'm confused how any of your strategies address the debt-to-income issue. Obviously, cash instead of a mortgage will affect the debt side of the DTI ratio, but what about the income side? Is all of your household income derived from things the co-op board doesn't count as income? What other debt do you have? If the co-op board says your income is $0, then it doesn't matter how low your debt is but we don't know what other income you have.

Also, just to clarify, your assets are 4x what the purchase price would be, or 4x what the mortgage would be after a 60% downpayment. Because I would feel a whole lot better if, for example, I was buying a [$1.0 million co-op with $4.0 million in assets] vs a [$1.0 million co-op with a $400k mortgage and $1.6 million in assets].

TropikThunder
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Joined: Sun Apr 03, 2016 5:41 pm

Re: Buying a home without income

Post by TropikThunder » Sat Jun 15, 2019 5:51 pm

jminv wrote:
Sat Jun 15, 2019 5:30 pm
Find a co-op board that will cooperate?
+1. OP's screen name includes "nyc", suggesting they live in NYC. I can't imagine it's rare in NYC for people to be buying residences with mostly unearned income (not that you didn't earn it, but that it's not wages or business revenue).

quantAndHold
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Re: Buying a home without income

Post by quantAndHold » Sat Jun 15, 2019 5:55 pm

Even if you do pay cash, do you have enough income for the HOA fees? I assume they count that in the debt to income ratio too.

Topic Author
remomnyc
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Joined: Mon Jan 04, 2016 4:27 pm

Re: Buying a home without income

Post by remomnyc » Sun Jun 16, 2019 12:58 pm

Yes, HOA is included in debt. After doing a 60% downpayment, we have 10x the mortgage in assets or 4x the value of the property. I did set up an automatic withdrawal when I retired. I reached out to some brokers and co-op board members and was told that dividends and interest that can be documented are typically included, which would give us 22% debt to income. (My spouse has income.) We need to avoid co-ops that do not count them (like the one where we bid) or do all cash in those buildings. I never considered paying the 15% capital gains and living mortgage free because I think leverage used properly boosts wealth. Given that I don't need more wealth, it may be time to just pay the capital gains and get on with my life. Spouse votes to continue to rent.

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