How to get an asset based mortgage

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Doug007
Posts: 7
Joined: Tue Jun 06, 2017 5:27 pm

How to get an asset based mortgage

Post by Doug007 » Tue Sep 11, 2018 7:59 pm

Greetings,
I am looking at buying a new house prior to selling my current one. My problem is I cannot qualify for a mortgage because I do not have any earned income. I am FIRE and living off a slow withdrawal of my nestegg, which is all in a non-retirement account. I know I am unable to get a mortgage because I wasn't even able to get a HELOC on my current home when I tried a year ago, even though I own the home outright and the HELOC would only represent less than 20% of the home's value. It seems the banks rigid guidelines expect you to fit in their box and one of the key items is income- and without that they won't lend regardless of all other favorable circumstances (excellent credit, significant investment assets, 100% equity).
All of my investments are with Vanguard and I would need to liquidate 80% of all of it in order to pay cash for the new home. This I am trying to avoid.
I was wondering what other options I might have? Surely I am not the only one in this predicament. I have heard that maybe transferring my accounts to a brokerage house and then getting an asset based loan might work? I am not sure about that. I do not want to be hit with the capital gains tax to liquidate my vanguard funds though.
Thank you for your thoughts!

LarryAllen
Posts: 1142
Joined: Fri Apr 22, 2016 9:41 am
Location: State of Confusion

Re: How to get an asset based mortgage

Post by LarryAllen » Tue Sep 11, 2018 8:00 pm

Hard money loan on the house. Higher interest rate and a couple of points.

Gill
Posts: 5279
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: How to get an asset based mortgage

Post by Gill » Tue Sep 11, 2018 8:14 pm

I was in a similar situation at one time and the bank suggested I set up an automatic monthly remittance of $10,000 from my IRA, thereby increasing my “income” by $120,000 a year. They immediately approved the loan and I immediately cancelled the remittance before the first one was made. Everyone knew what happened but it was a hoop that needed jumping through.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

schachtw
Posts: 126
Joined: Mon Jul 06, 2015 6:15 pm

Re: How to get an asset based mortgage

Post by schachtw » Tue Sep 11, 2018 8:53 pm

Doug007 wrote:
Tue Sep 11, 2018 7:59 pm
Greetings,
I am looking at buying a new house prior to selling my current one. My problem is I cannot qualify for a mortgage because I do not have any earned income. I am FIRE and living off a slow withdrawal of my nestegg, which is all in a non-retirement account. I know I am unable to get a mortgage because I wasn't even able to get a HELOC on my current home when I tried a year ago, even though I own the home outright and the HELOC would only represent less than 20% of the home's value. It seems the banks rigid guidelines expect you to fit in their box and one of the key items is income- and without that they won't lend regardless of all other favorable circumstances (excellent credit, significant investment assets, 100% equity).
All of my investments are with Vanguard and I would need to liquidate 80% of all of it in order to pay cash for the new home. This I am trying to avoid.
I was wondering what other options I might have? Surely I am not the only one in this predicament. I have heard that maybe transferring my accounts to a brokerage house and then getting an asset based loan might work? I am not sure about that. I do not want to be hit with the capital gains tax to liquidate my vanguard funds though.
Thank you for your thoughts!

My wife and I are retired, and plan on closing on a new construction condo in the spring of 2019.

Currently, our income stream is comprised of:
Wife’s pension and social security
My spousal social security (will file for my own benefit when we close).

We have contacted three lenders, and all are willing to underwrite an ‘asset depletion’ mortgage. As I understand this, they look at the total assets (investment, retirement, pension, etc.), and use this aggregate figure to determine eligibility. ARMs are the only mortgage type available with this type of loan.

FYI: we are putting 25% down; we set aside cash for the down payment three years ago. We won’t have to sell any holdings.

Hope this helps.

delamer
Posts: 7707
Joined: Tue Feb 08, 2011 6:13 pm

Re: How to get an asset based mortgage

Post by delamer » Tue Sep 11, 2018 10:04 pm

What about a portfolio lender?

They keep their loans in house, and so don’t have to meet all the various government requirements for lending.

kmn99
Posts: 25
Joined: Mon Dec 03, 2018 7:09 pm

Re: How to get an asset based mortgage

Post by kmn99 » Thu Dec 06, 2018 12:12 am

Anyone who had luck with this asset depletion loans, could you please post the name/contact details of the lender? I tried a while back and gave up.

Topic Author
Doug007
Posts: 7
Joined: Tue Jun 06, 2017 5:27 pm

Re: How to get an asset based mortgage

Post by Doug007 » Thu Dec 06, 2018 10:44 am

Follow up:
I wasn't able to find any loan source in the timeframe needed to close on my new property, so I ended up liquidating a substantial portion of my Index funds. Given the way the market has gone down steadily since then, might not have been a bad choice. Sometimes you get lucky.

kmn99
Posts: 25
Joined: Mon Dec 03, 2018 7:09 pm

Re: How to get an asset based mortgage

Post by kmn99 » Thu Dec 06, 2018 1:17 pm

True..Sometimes :happy

edgeway
Posts: 13
Joined: Thu Nov 15, 2018 3:00 pm

Re: How to get an asset based mortgage

Post by edgeway » Thu Dec 06, 2018 6:36 pm

It sounds like this recommendation may be too late but I know Interactive Brokers (and other brokerages for much higher fees) will let you borrow money using your portfolio as collateral. IB’s rates are pretty low.

mxyztplk
Posts: 3
Joined: Sun Feb 07, 2016 5:12 pm

Re: How to get an asset based mortgage

Post by mxyztplk » Sat Apr 06, 2019 4:48 pm

Schwab is an example of a lender that makes mortgage loans that include the calculation of imputed income from financial assets in qualifying the borrower. It does so via its Schwab Mortgage subsidiary. The loans are processed and serviced through Quicken Loans.

I have obtained mortgages through Schwab Mortages that were almost entirely qualified based on an asset-based imputed income calculation. The same rates apparently apply as for other mortgages. I.e., asset-based income is simply another source of income used for qualifying for the loan. In Schwab's current calculation, as I understand it, they take 70% of your qualified financial assets (e.g., the average of the last two months value of your mutual fund balances that you can draw on) and amortize that amount over 360 months at a (somewhat puny) rate of return of 2% per year to arrive at an imputed monthly income amount from that source.

(Some years ago, Schwab simply multiplied the asset value by 4% to give an imputed yearly income. I don't know why they changed that formula. Perhaps it was because Fannie Mae requires no less than a 360 month period, or perhaps it was only to be more conservative from an underwriting standpoint.)

I used Schwab Mortgage because the asset-based imputed income calculation was both usual and straightforward in their processes, and because their rates were quite competitive. In fact, they state their rates directly on their web page. (Note that I maintain the bulk of my assets at Vanguard; as with lenders generally, when calculating the imputed income from the assets, Schwab does not care where the assets are maintained.)

Searching on the web for "asset based" mortgages or "asset depletion" mortgages, you will find a large number of lenders, with greatly varying formulas as to how to calculate imputed income from your financial assets. For example: if amortized, the imputed rate of return may be anywhere from 0% to 5%; the number of months may vary, anywhere from, say 120 to 360; a "hair cut" subtraction from assets may be used or not, varying, say, from 0% to 40%; and the life expectancy of the borrower may be calculated, to reduce the number of months over which the imputed income is amortized. (In the latter case, if you are an old fogey, the imputed income can greatly rise, simply because the principal is being imputed to be withdrawn over a shorter time period.)

Some of the lenders even have their asset-based imputed income calculators on the web, so you can determine how much income would be imputed to you for that lender. For most lenders who make asset-based loans, however, you would need to call the lender to find out how much income that lender would impute to your particular amount and type of financial assets.

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