Mortgage for Retirees

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Bunji
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Mortgage for Retirees

Post by Bunji » Thu Aug 08, 2019 3:24 pm

Do any retirees have experience getting a mortgage?

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Meg77
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Re: Mortgage for Retirees

Post by Meg77 » Thu Aug 08, 2019 3:38 pm

I'm a banker who does lots of mortgages, and we do extend them to retired people. You still have to qualify under the usual debt to income ratios, but various retirement income, including distributions from any traditional retirement accounts, will count.

If you don't show much income on your tax returns, you may still be able to get a mortgage if you have enough liquid investments to impute a certain level of income (and/or if you have more in investable assets than the loan balance). Basically, the lender will still have to show your bad debt to income ratios, but they may be willing to make an exception and approve the loan anyway based on your level of assets. This is where the rules will vary from lender to lender.

Plenty of retired people get mortgages; you just may have to shop around to get approved or put down more than you otherwise would if your AGI is low relative to the loan you want. Even folks with all their assets in trust or with negative income (but who have wealth) who can't get conventional mortgages can get loans via community banks or private bank divisions of banks that don't sell their mortgages. They may have shorter terms and higher rates as a result though.
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bengal22
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Re: Mortgage for Retirees

Post by bengal22 » Thu Aug 08, 2019 3:53 pm

I was retired when I got my mortgage. No issues. Enough assets to cover mortgage.
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ResearchMed
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Re: Mortgage for Retirees

Post by ResearchMed » Thu Aug 08, 2019 4:18 pm

Meg77 wrote:
Thu Aug 08, 2019 3:38 pm
I'm a banker who does lots of mortgages, and we do extend them to retired people. You still have to qualify under the usual debt to income ratios, but various retirement income, including distributions from any traditional retirement accounts, will count.

If you don't show much income on your tax returns, you may still be able to get a mortgage if you have enough liquid investments to impute a certain level of income (and/or if you have more in investable assets than the loan balance). Basically, the lender will still have to show your bad debt to income ratios, but they may be willing to make an exception and approve the loan anyway based on your level of assets. This is where the rules will vary from lender to lender.

Plenty of retired people get mortgages; you just may have to shop around to get approved or put down more than you otherwise would if your AGI is low relative to the loan you want. Even folks with all their assets in trust or with negative income (but who have wealth) who can't get conventional mortgages can get loans via community banks or private bank divisions of banks that don't sell their mortgages. They may have shorter terms and higher rates as a result though.
Question: Does your bank require that there *already* be IRA (or 403b/etc.) distributions prior to the mortgage?

The one time we looked into this, calculated as "asset depletion", we would have needed to show at least 24 months of '"adequate" monthly distributions (aka "income", of course).
Well, one of the reasons we had the nice total retirement accounts was that we had NOT taken any distributions, and at that time, we were just short of being required to take any RMD at all.

It seemed like a catch 22. Of course, we could have been taking the distributions and not spending them, but then the tax advantage of those accounts would have been gone!

In our case, it was for a second property, and we hadn't realized that we would qualify for that mortgage without bothering about asset depletion, etc. So it ended up being a "non-issue". But it *might* have mattered... a lot!

Thanks.

RM
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marielake
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Re: Mortgage for Retirees

Post by marielake » Thu Aug 08, 2019 8:11 pm

I am retired and in the process of refinancing. The broker told me I would need to get a letter from fidelity stating that I was withdrawing a certain amount every month so that I could get to a certain ratio. I challenged him on it because I don't need the funds and don't want to take the money out. He continued to calculate his formulas. In the end, I met the ratio without the monthly withdrawals.

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whodidntante
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Re: Mortgage for Retirees

Post by whodidntante » Thu Aug 08, 2019 8:25 pm

Margin loan is an option for some. And if it is, it might be a better option. No closing costs, no payments required (if you maintain maintenance margin), no income required, and the interest rate can be better. Plus the lending standards are as loose as a 2005 Miami, FL no doc loan. You will probably be able to get one if your credit is north of trainwreck.

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catdude
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Re: Mortgage for Retirees

Post by catdude » Thu Aug 08, 2019 8:44 pm

I'm retired and in the process of selling my current home and buying a newly built one. A couple weeks ago it looked like I might need to get a mortgage to buy the new house, so I talked to a mortgage broker. My pension income is fairly modest, but he qualified me for a mortgage ("just in case") based on significant assets I have in retirement accounts. As it turned out, I got a cash offer on the old house and am able to use those proceeds to purchase the new house, so I don't need the mortgage...
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Re: Mortgage for Retirees

Post by Sandtrap » Thu Aug 08, 2019 8:57 pm

catdude wrote:
Thu Aug 08, 2019 8:44 pm
I'm retired and in the process of selling my current home and buying a newly built one. A couple weeks ago it looked like I might need to get a mortgage to buy the new house, so I talked to a mortgage broker. My pension income is fairly modest, but he qualified me for a mortgage ("just in case") based on significant assets I have in retirement accounts. As it turned out, I got a cash offer on the old house and am able to use those proceeds to purchase the new house, so I don't need the mortgage...
Great!
Sometimes it works out as planned and for the better.

I know a retiree couple that had to go back to work to pay for mortgages and expenses on 2 homes. The new home (custom built) mortgage should have been paid off by the proceeds from the sale of the older home (another state). Well. The old home is in a down market area and has yet to sell. Thus. Stuck.

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catdude
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Re: Mortgage for Retirees

Post by catdude » Thu Aug 08, 2019 9:09 pm

Sandtrap wrote:
Thu Aug 08, 2019 8:57 pm
j.
(love those cats!!!)
Thanks!! :beer
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jefmafnl
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Mortgage for seniors

Post by jefmafnl » Fri Aug 09, 2019 6:09 am

[Topic merged to here. -- mod oldcomputerguy]

We will be relocating to the US in 2021, after my retirement, following 26+ years of living in Europe.

How hard is it for seniors (both over 65) to get a mortgage? The purchase price would be between about 2-1/2 and 3 times our Social Security and pension income.

--Almost impossible, few sources from which to choose?
--Difficult, may need more than 20% down?
--Difficult, may need to pay a substantially higher interest rate?
--Not difficult?

Thanks!

J

RC1
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Re: Mortgage for seniors

Post by RC1 » Fri Aug 09, 2019 6:37 am

I’m interested in the answers here also. I’ve heard that renting makes more sense.
Landlord is responsible for maintenance.

Also, the interest deduction isn’t what is once was with the passage of the tax act.

Debt is to be avoided but this is secured with the property so it’s a little different.

Down payment leads to opportunity cost issues.

I’ve heard that qualifying is really based on how stable your funding sources are viewed.

Lots of questions, no definitive answers

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Sandtrap
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Re: Mortgage for seniors

Post by Sandtrap » Fri Aug 09, 2019 6:41 am

There is a concurrent thread right now on this:
viewtopic.php?p=4686995#p4686995
Also, a lot of posts on this:
Search the forum archives:
"mortgage" "seniors".

j
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FBN2014
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Re: Mortgage for seniors

Post by FBN2014 » Fri Aug 09, 2019 7:26 am

You can get a reverse mortgage for purchase.
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schachtw
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Re: Mortgage for seniors

Post by schachtw » Fri Aug 09, 2019 7:59 am

My wife and I are both retired, and 68 years. We are in the process of getting approved for our mortgage application.

For our situation, the lender is using an ‘asset depletion’ method to determine eligibility.

WillRetire
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Re: Mortgage for Retirees

Post by WillRetire » Fri Aug 09, 2019 8:05 am

whodidntante wrote:
Thu Aug 08, 2019 8:25 pm
Margin loan is an option for some. And if it is, it might be a better option. No closing costs, no payments required (if you maintain maintenance margin), no income required, and the interest rate can be better. Plus the lending standards are as loose as a 2005 Miami, FL no doc loan. You will probably be able to get one if your credit is north of trainwreck.
Thank you for this info! This may work for us.

cadreamer2015
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Re: Mortgage for Retirees

Post by cadreamer2015 » Fri Aug 09, 2019 8:41 am

I got an asset depletion mortgage from Bank of America. Just had to show enough assets in retirement accounts - did not have to be withdrawing anything from the retirement accounts. Not all financial institutions do asset depletion mortgages - my local credit union did not. Try a mortgage broker or talk to your usual bank.

Some links:

https://www.brightscope.com/financial-p ... Depletion/
https://www.kiplinger.com/article/retir ... tgage.html
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Re: Mortgage for seniors

Post by cadreamer2015 » Fri Aug 09, 2019 8:51 am

It is slightly more difficult than for someone who has adequate W2 income, but not really difficult in the scheme of things. You can talk to a mortgage broker or any number of banks.
De gustibus non est disputandum

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Re: Mortgage for seniors

Post by cheese_breath » Fri Aug 09, 2019 9:01 am

The surest way to know the future is when it becomes the past.

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Re: Mortgage for seniors

Post by RickBoglehead » Fri Aug 09, 2019 12:01 pm

schachtw wrote:
Fri Aug 09, 2019 7:59 am
My wife and I are both retired, and 68 years. We are in the process of getting approved for our mortgage application.

For our situation, the lender is using an ‘asset depletion’ method to determine eligibility.
What lender?

We've mentioned asset depletion method to several banks and they had no clue.
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Re: Mortgage for seniors

Post by willthrill81 » Fri Aug 09, 2019 12:22 pm

If you will be dependent on withdrawals from an investment portfolio, you may want to avoid a mortgage as it increases your sequence of returns risk, potentially dramatically.
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Re: Mortgage for Retirees

Post by cadreamer2015 » Fri Aug 09, 2019 4:11 pm

As mentioned in other threads, we got an asset depletion mortgage from Bank of America in October, 2016. After moving $500,000 to Merrill Edge temporarily we got a 30 year fixed at 3.25%. Also got a $1,200 bonus in the Merrill Edge account after 9 months. Then moved it all back to Vanguard.
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schachtw
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Re: Mortgage for seniors

Post by schachtw » Fri Aug 09, 2019 4:25 pm

RickBoglehead wrote:
Fri Aug 09, 2019 12:01 pm
schachtw wrote:
Fri Aug 09, 2019 7:59 am
My wife and I are both retired, and 68 years. We are in the process of getting approved for our mortgage application.

For our situation, the lender is using an ‘asset depletion’ method to determine eligibility.
What lender?

We've mentioned asset depletion method to several banks and they had no clue.
We’re in the Chicago area. Citibank, Chase and US Bank all offered ‘asset depletion’ mortgages.

Basically, you have to have enough net worth to cover the loan. For us, there were no stipulations.

Tamales
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Re: Mortgage for Retirees

Post by Tamales » Sat Aug 10, 2019 9:23 am

The messier situation is retiring early with no pension, and no SS claims planned for a number of years, and relocating to another state, but with retirement funds (including after-tax accounts) well in excess of the new mortgage amount.

So there will be some period where you'd have 2 houses as you wait for the old one (I assume it's better if the old house is mortgage-free) to sell. In a down market, that sale may take a long time, or you may have to accept a really low offer.

b4real
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Re: Mortgage for Retirees

Post by b4real » Sat Aug 10, 2019 4:15 pm

From a thread last year: Buying a house in retirement
"We purchased in a new city after retiring and before selling our old house. The mortgage company wanted to see ongoing income that met their 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".

CurlyDave
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Re: Mortgage for Retirees

Post by CurlyDave » Sat Aug 10, 2019 7:39 pm

WillRetire wrote:
Fri Aug 09, 2019 8:05 am
whodidntante wrote:
Thu Aug 08, 2019 8:25 pm
Margin loan is an option for some. And if it is, it might be a better option. No closing costs, no payments required (if you maintain maintenance margin), no income required, and the interest rate can be better. Plus the lending standards are as loose as a 2005 Miami, FL no doc loan. You will probably be able to get one if your credit is north of trainwreck.
Thank you for this info! This may work for us.
Look into interest rates before getting your heart set on a margin loan. My brokerage is TDA and their margin rates are currently a base of 9.25% adjusted for the amount of loan. For loans between $100k and 250K, the adjustment is -0.5%, for an actual rate of 8.75%.

If you happen to be at Interactive Brokers their rates are much better, but in most cases a real mortgage is going to be very advantageous compared to a margin loan. I just looked up the IB website and for a $300k margin loan they claim:

IB 3.39%
Fidelity 7.82%
E-Trade 8.75%
Schwab 7.82%

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Re: Mortgage for Retirees

Post by LadyGeek » Sat Aug 10, 2019 8:12 pm

This thread is now in the Personal Finance (Not Investing) forum (mortgage).
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schachtw
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Re: Mortgage for Retirees

Post by schachtw » Sat Aug 10, 2019 8:58 pm

b4real wrote:
Sat Aug 10, 2019 4:15 pm
From a thread last year: Buying a house in retirement
"We purchased in a new city after retiring and before selling our old house. The mortgage company wanted to see ongoing income that met their 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".
In our circumstance, US Bank and Citibank did not require proof of an ongoing income stream. We aren’t taking RMDs yet; we simply provided normal brokerage and bank statements going back 60 days, as well as our SSA verification letters.

Chase was going to require proof of an income stream, however, when it was pointed out we were not relying on RMD revenue, they waived that requirement.

Every case differs.

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Re: Mortgage for Retirees

Post by Meg77 » Tue Aug 13, 2019 4:32 pm

ResearchMed wrote:
Thu Aug 08, 2019 4:18 pm
Meg77 wrote:
Thu Aug 08, 2019 3:38 pm
I'm a banker who does lots of mortgages, and we do extend them to retired people. You still have to qualify under the usual debt to income ratios, but various retirement income, including distributions from any traditional retirement accounts, will count.

If you don't show much income on your tax returns, you may still be able to get a mortgage if you have enough liquid investments to impute a certain level of income (and/or if you have more in investable assets than the loan balance). Basically, the lender will still have to show your bad debt to income ratios, but they may be willing to make an exception and approve the loan anyway based on your level of assets. This is where the rules will vary from lender to lender.

Plenty of retired people get mortgages; you just may have to shop around to get approved or put down more than you otherwise would if your AGI is low relative to the loan you want. Even folks with all their assets in trust or with negative income (but who have wealth) who can't get conventional mortgages can get loans via community banks or private bank divisions of banks that don't sell their mortgages. They may have shorter terms and higher rates as a result though.
Question: Does your bank require that there *already* be IRA (or 403b/etc.) distributions prior to the mortgage?

The one time we looked into this, calculated as "asset depletion", we would have needed to show at least 24 months of '"adequate" monthly distributions (aka "income", of course).
Well, one of the reasons we had the nice total retirement accounts was that we had NOT taken any distributions, and at that time, we were just short of being required to take any RMD at all.

It seemed like a catch 22. Of course, we could have been taking the distributions and not spending them, but then the tax advantage of those accounts would have been gone!

In our case, it was for a second property, and we hadn't realized that we would qualify for that mortgage without bothering about asset depletion, etc. So it ended up being a "non-issue". But it *might* have mattered... a lot!

Thanks.

RM
Yes, it doesn't count as *historical* income unless you've actually been taking distributions, as evidenced by your tax returns (so, Roth distributions don't count for that purpose, just as brokerage investment sales don't count). I know it doesn't make sense on the surface, but the tax return is the easiest and most basic way to start with to document income. Cash inflows that don't show up there can sometimes be counted, but it's more work. But there are good reasons why AGI may be low or even negative when people can actually afford a loan. That's why banks can and do also use liquid investments (including retirement assets if you are over 59.5) to mitigate bad debt to income ratios. But it takes a lot of manual underwriting and exception approval which is a bit harder, so not every lender is as interested in making it work especially for a low loan balance or a second home or investment property (which are riskier than a primary residence of going into default and foreclosure).
"An investment in knowledge pays the best interest." - Benjamin Franklin

ubermax
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Re: Mortgage for Retirees

Post by ubermax » Fri Aug 16, 2019 5:37 pm

My wife and I are retired and are collecting RMDs ; we recently applied for and were approved for a loan but the local bank wouldn't disclose the criteria that they used in their decision , all they said was that credit rating , income , and assets were considered and in our case debt related to two mortgages was also a factor.

Before meeting with our banker I read the literature online discussing the objective criteria that was used by banks to approve a mortgage application - the debt to income ratio was talked about and within that metric there was the front-end and back-end ratios - since we would be carrying two mortgages for awhile , the back-end ratio was critical ; I did some spreadsheet calculations making some assumptions and came to the conclusion that consideration of our assets would be critical for the amount we wanted to borrow ; the problem was I had no idea how the bank would convert assets into an income stream - and here again there is information online about "asset depletion" loans and I recall a couple of methods that were discussed but any particular bank can have their own unique underwriting guidelines .

I'm not a lawyer but to my mind there could potentially be legal issues ; for example , an older couple takes out a mortgage loan supported by primarily IRA assets and they die - are IRA assets ,now with a beneficiary , protected from creditors ? if not then the bank would be looking at diminished risk ; and there may be other legal questions .

There were many well meaning responses above , many very encouraging but it all comes down to the face to face between borrower and banker , hard to predict the outcome - in a discussion/advice forum like this , talk is cheap and not binding .

My takeaway from this experience , should there be a next time is : give the bank what they ask for and accept their decision .

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