Applying for mortgage with "no income"

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Bob_Sacamano
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Applying for mortgage with "no income"

Post by Bob_Sacamano »

My parents have a small business property that they are in the process of selling with the intention of then buying a house/retiring. The sale has been negotiated through a seller-financed agreement. They will receive monthly payments (with interest) from the buyer for the sale of the property over a 15yr period.

However, we are experiencing some difficulty in applying for a new home loan as the monthly payments from the buyer are forthcoming and my parents don't have a 12mo record of income to provide for documentation. I checked with better.com and they are not willing to pre-approve for a loan based simply on assets. A preferred lender for the builder we are considering for the new home is looking into whether they can manually underwrite the loan but we were hoping to get some competing offers. What are our options? I could possibly co-sign the application with my income/score but I already have a mortgage of my own.
Golf maniac
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Re: Applying for mortgage with "no income"

Post by Golf maniac »

Could they possibly rent for a year to establish the income? If it is a conforming loan the agencies have pretty strict rules on the loans they accept and need for verifiable income. There are some lenders that put loans in their own portfolio and can work with a borrower on income. Try talking to smaller local banks and maybe a broker or two. I would not co-sign, it would require a refinance in the future to get you off the mortgage and would double their closing costs.
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willthrill81
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Re: Applying for mortgage with "no income"

Post by willthrill81 »

Do not cosign. Never. For anyone. Ever.

You might have to go with a locally operated bank or credit union. The big players often won't grant mortgages to those without earned income. Even small business owners can have to jump through many hoops to do it. Lenders like W2 income.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
000
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Re: Applying for mortgage with "no income"

Post by 000 »

Bob_Sacamano wrote: Mon Oct 05, 2020 4:24 pm My parents have a small business property that they are in the process of selling with the intention of then buying a house/retiring. The sale has been negotiated through a seller-financed agreement. They will receive monthly payments (with interest) from the buyer for the sale of the property over a 15yr period.
Sounds like they need to negotiate this part of the deal better.

Can the business buyer cosign their home loan (with the right to take it out of future payments)?

Can the bank get a security interest in the business property?

Can the bank finance part of the business sale, opening up cash for them to buy a home outright?

Et cetera.
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Tyler9000
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Re: Applying for mortgage with "no income"

Post by Tyler9000 »

Search for banks or credit unions that offer "asset based" or "asset depletion" mortgages. They do exist and are happy to finance homes for retirees, but it's less common than traditional income-based mortgages and you may have to work a little harder to find one that will work with you. I'm not sure how they'd handle the fixed income stream in the calculations, but I bet they'd be able to figure something out.

(I haven't done this and don't have one to recommend, but I've done just enough research to know what to look for if/when I do need one.)
WanderingWilly
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Re: Applying for mortgage with "no income"

Post by WanderingWilly »

I'm currently going through the process of getting a house loan. I made an offer on a house and the offer was accepted. Not knowing any better I mentioned to the realtor and loan officer that since my offer was accepted I was going to retire and move. They didn't like to hear that at all. They made it very plain: DO NOT under any circumstances talk to my employer about retiring before I got my loan. Even with putting over 40% down the loan officer said they would balk at giving me a loan if I didn't have a steady income. My assets didn't count, they said I could lose them. I talked to a few other loan officers since and they all concurred. I guess once the loan is issued I can retire whenever I want.
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cchrissyy
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Re: Applying for mortgage with "no income"

Post by cchrissyy »

i disagree with the framing that they have no income or that they need an asset-based mortgage.

they have income and they have a contract to prove it. if the first bank they talk to requires 12 months payments already received, look for another bank.

if it was me, i would call my credit union because i know they keep their loans in-house and don't need them to be conforming and ready for re-sale, and if i got an unfavorable reply from them I'd engage a mortgage broker to find something.
Bobby206
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Re: Applying for mortgage with "no income"

Post by Bobby206 »

Perhaps you can loan them money so they can make a big down payment!? That's better than co-signing I think.

Hard money loans are sometimes an option in unique situations but generally higher interest plus points.

Good luck.
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Bob_Sacamano
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Re: Applying for mortgage with "no income"

Post by Bob_Sacamano »

So far the banks we have called are not playing ball. They want to see some record of verifiable income. The sale agreement and expected payments from that doesn't qualify apparently. We have a house picked out and want to go under contract but this is holding us up. I may have to cosign...
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willthrill81
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Re: Applying for mortgage with "no income"

Post by willthrill81 »

Bob_Sacamano wrote: Tue Oct 06, 2020 6:03 pm So far the banks we have called are not playing ball. They want to see some record of verifiable income. The sale agreement and expected payments from that doesn't qualify apparently. We have a house picked out and want to go under contract but this is holding us up. I may have to cosign...
Again, do not cosign.

Have you contacted local, independent banks? What about credit unions? The latter are more likely to 'play ball' than banks, especially large banks.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Bob_Sacamano
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Re: Applying for mortgage with "no income"

Post by Bob_Sacamano »

willthrill81 wrote: Tue Oct 06, 2020 6:05 pm
Bob_Sacamano wrote: Tue Oct 06, 2020 6:03 pm So far the banks we have called are not playing ball. They want to see some record of verifiable income. The sale agreement and expected payments from that doesn't qualify apparently. We have a house picked out and want to go under contract but this is holding us up. I may have to cosign...
Again, do not cosign.

Have you contacted local, independent banks? What about credit unions? The latter are more likely to 'play ball' than banks, especially large banks.
Yes we're trying banks big and small. I will make more calls tomorrow.

Why is cosigning so bad? I understand I would be legally liable if my parents defaulted but that's not going to happen. They have enough savings to make the monthly payments. I also get that my credit score would take a hit but it is what it is. I have a home for myself already and a paid off car so there's nothing on my horizon that would require a credit pull.
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willthrill81
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Re: Applying for mortgage with "no income"

Post by willthrill81 »

Bob_Sacamano wrote: Tue Oct 06, 2020 6:09 pm
willthrill81 wrote: Tue Oct 06, 2020 6:05 pm
Bob_Sacamano wrote: Tue Oct 06, 2020 6:03 pm So far the banks we have called are not playing ball. They want to see some record of verifiable income. The sale agreement and expected payments from that doesn't qualify apparently. We have a house picked out and want to go under contract but this is holding us up. I may have to cosign...
Again, do not cosign.

Have you contacted local, independent banks? What about credit unions? The latter are more likely to 'play ball' than banks, especially large banks.
Yes we're trying banks big and small. I will make more calls tomorrow.

Why is cosigning so bad? I understand I would be legally liable if my parents defaulted but that's not going to happen. They have enough savings to make the monthly payments. I also get that my credit score would take a hit but it is what it is. I have a home for myself already and a paid off car so there's nothing on my horizon that would require a credit pull.
I'm sure that none of the many others who got in big financial trouble from cosigning didn't anticipate any problems from doing so either. It's very risky, and I would never recommend it for anyone, ever.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
alex_686
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Re: Applying for mortgage with "no income"

Post by alex_686 »

cchrissyy wrote: Mon Oct 05, 2020 9:13 pm they have income and they have a contract to prove it. if the first bank they talk to requires 12 months payments already received, look for another bank.
Right now it is just a piece of paper.

Maybe the asset is inflated in price or the venture is speculative. Perhaps it is a shame transaction. Banks learned lots of harsh lessons in 2008. Standards have been tightened.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
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galawdawg
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Re: Applying for mortgage with "no income"

Post by galawdawg »

Here are the underwriting guidelines for both Fannie Mae and Freddie Mac. They will outline what is acceptable for income verification.

https://selling-guide.fanniemae.com/Sel ... Borrowers/ and https://guide.freddiemac.com/app/guide/topic/5300

You mentioned that your parents have sufficient funds to pay the mortgage. Why don't they just pay cash?
Topic Author
Bob_Sacamano
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Re: Applying for mortgage with "no income"

Post by Bob_Sacamano »

galawdawg wrote: Tue Oct 06, 2020 6:40 pm Here are the underwriting guidelines for both Fannie Mae and Freddie Mac. They will outline what is acceptable for income verification.

https://selling-guide.fanniemae.com/Sel ... Borrowers/ and https://guide.freddiemac.com/app/guide/topic/5300

You mentioned that your parents have sufficient funds to pay the mortgage. Why don't they just pay cash?
They have about 400k in savings. Their income from the sale would be about 5k/mo. We estimated their monthly expenses to be about 8k/mo. So decent savings but not so much that they can pay cash.
Last edited by Bob_Sacamano on Tue Oct 06, 2020 6:58 pm, edited 1 time in total.
crazygrow
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Re: Applying for mortgage with "no income"

Post by crazygrow »

We just had a similar situation. We had a family business that we were heavily investing in (read revenue growth and little profit) since 2017. I had my corporate exec job making great money but left in November 2019 so we decided to just run the business and live off of it making as much as my corporate job. We then ended up moving unexpectedly in August 2020 and no one would even look at us for a loan until we met with a mid tier bank and agreed to move $750k in assets to them and on the close date and then we could just move the money back. We got a jumbo loan at 2.875% from them and it was great. So if your parents can swing it find a smaller bank with a program for high net worth the individuals.
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Nate79
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Re: Applying for mortgage with "no income"

Post by Nate79 »

Bob_Sacamano wrote: Tue Oct 06, 2020 6:55 pm
galawdawg wrote: Tue Oct 06, 2020 6:40 pm Here are the underwriting guidelines for both Fannie Mae and Freddie Mac. They will outline what is acceptable for income verification.

https://selling-guide.fanniemae.com/Sel ... Borrowers/ and https://guide.freddiemac.com/app/guide/topic/5300

You mentioned that your parents have sufficient funds to pay the mortgage. Why don't they just pay cash?
They have about 400k in savings. Their income from the sale would be about 5k/mo. We estimated their monthly expenses to be about 8k/mo. So decent savings but not so much that they can pay cash.
Do they have any other assets/pensions/income that isnt mentioned here? Because their expenses are way too high for their level of assets to sustain.
Cactuscoug
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Re: Applying for mortgage with "no income"

Post by Cactuscoug »

We've been retired for a long time. Three years ago, we moved, and took out a mortgage to bridge the transactions. We got the loan through Costco's website. We demonstrated "income" by making withdrawals from our IRA for two months.
Topic Author
Bob_Sacamano
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Re: Applying for mortgage with "no income"

Post by Bob_Sacamano »

Nate79 wrote: Tue Oct 06, 2020 7:52 pm
Bob_Sacamano wrote: Tue Oct 06, 2020 6:55 pm
galawdawg wrote: Tue Oct 06, 2020 6:40 pm Here are the underwriting guidelines for both Fannie Mae and Freddie Mac. They will outline what is acceptable for income verification.

https://selling-guide.fanniemae.com/Sel ... Borrowers/ and https://guide.freddiemac.com/app/guide/topic/5300

You mentioned that your parents have sufficient funds to pay the mortgage. Why don't they just pay cash?
They have about 400k in savings. Their income from the sale would be about 5k/mo. We estimated their monthly expenses to be about 8k/mo. So decent savings but not so much that they can pay cash.
Do they have any other assets/pensions/income that isnt mentioned here? Because their expenses are way too high for their level of assets to sustain.
Social security will help bridge that gap. They will start eating into their savings slowly but they should be good for the next 15 or so years. The expenses includes everything we could think of as well as a budget for vacations.
tomtoms
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Re: Applying for mortgage with "no income"

Post by tomtoms »

Bob_Sacamano wrote: Tue Oct 06, 2020 6:09 pm
willthrill81 wrote: Tue Oct 06, 2020 6:05 pm
Bob_Sacamano wrote: Tue Oct 06, 2020 6:03 pm So far the banks we have called are not playing ball. They want to see some record of verifiable income. The sale agreement and expected payments from that doesn't qualify apparently. We have a house picked out and want to go under contract but this is holding us up. I may have to cosign...
Again, do not cosign.

Have you contacted local, independent banks? What about credit unions? The latter are more likely to 'play ball' than banks, especially large banks.
Yes we're trying banks big and small. I will make more calls tomorrow.

Why is cosigning so bad? I understand I would be legally liable if my parents defaulted but that's not going to happen. They have enough savings to make the monthly payments. I also get that my credit score would take a hit but it is what it is. I have a home for myself already and a paid off car so there's nothing on my horizon that would require a credit pull.
Do you know if you would qualify as a cosigner? It is not a bad idea but your debt to income ratio might be inflated and you won’t be able to take on more debt in the near future.
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Bob_Sacamano
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Re: Applying for mortgage with "no income"

Post by Bob_Sacamano »

A mortgage broker recommended what she called a "Family Opportunity Loan". Is anyone familiar with this? There's many articles for it online but I don't see how it's any different from co-signing. Apparently it is an actual FHA program.

She said I would apply as if I was buying a second home. Everything would be based off my income, assets, credit score, etc. My parents would "gift" the amount for downpayment and their names would be added to the title at closing.
Golf maniac
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Re: Applying for mortgage with "no income"

Post by Golf maniac »

Only you know your parents and their financial capacity. If you are comfortable helping them then co-sign with them. No one on here can tell you what to do, we don’t know your parents or their financial responsibility. Good luck.
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AerialWombat
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Re: Applying for mortgage with "no income"

Post by AerialWombat »

Based on the information provided so far, it seems to me like the best course of action would be to bench the home purchase entirely. Rent for a year.
3of10
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Re: Applying for mortgage with "no income"

Post by 3of10 »

Bob_Sacamano wrote: Mon Oct 05, 2020 4:24 pmI checked with better.com and they are not willing to pre-approve for a loan based simply on assets.
When I was doing a refi with Better awhile back (this year), out of curiosity I inquired about whether assets (401K, IRA) could be used solely as income for a refi. I was told directly the following quote by a Better LO:

"Better has a lender overlay that requires a regular monthly distribution has been set up, the receipt of at least 1 month into the borrowers bank account, and there is sufficient assets for at least 3 years worth of distributions."

This appears to coincide with the Fannie Mae guidelines (below). I don't know if this info will also apply to a purchase, but it definitely can be used for a refi. You might want to talk to a Better supervisor, or try over again with a more experienced Better team.

Fannie Mae - Continuity of Income
If the income source does have a defined expiration date or is dependent on the depletion of an asset account or other limited benefit, the lender must document the likelihood of continued receipt of the income for at least three years.

If the lender is notified that the borrower is transitioning to a lower pay structure, for example due to pending retirement, the lender must use the lower amount to qualify the borrower.

The following table contains examples of income types with and without defined expiration dates. This information is provided to assist lenders in determining whether additional income documentation may be necessary to support a three-year continuance. Note that lenders remain responsible for making the final determination of whether the borrower’s specific income source has a defined expiration date.

Defined Expiration Date*
Lender must document 3–year continuance


alimony or child support
distributions from a retirement account – for example, 401(k), IRA, SEP, Keogh
mortgage differential payments
Social Security (not including retirement or long-term disability).....
rascott
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Re: Applying for mortgage with "no income"

Post by rascott »

Where have they been living up until now? In the small business property?
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Mlm
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Re: Applying for mortgage with "no income"

Post by Mlm »

I would wait until the sale closes and the income starts flowing in. Between now and then things can go wrong. Even if you are financially able I would not insert yourself in the middle of your parents finances. I suspect the builder will be there in another six months when they get everything ironed out. They don’t need your help if they’re willing to practice a little patience and delayed gratification
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Bob_Sacamano
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Re: Applying for mortgage with "no income"

Post by Bob_Sacamano »

We've put an offer on a used home. Our mortgage broker has recommended a Family Opportunity Mortgage. This is a Fannie Mae program that allows adult children to buy a home for their elderly parents who cannot do so themselves. It's not well known but there's many results for it on Google. What do you guys think of this product? I am still not quite seeing the distinction between it and co-signing but the articles don't seem to mention cons or warnings. Broker said it's as if I'm buying a second home but this program allows that it not be considered an investment property so it is mostly a standard loan. She says I would apply under my credentials and the down payment would be "gifted" from my parents. I have no doubt my parents will make the payments. They will have income from the sale as well as some savings assets. It's just that they don't qualify for a loan themselves due to the nature of how income is reported for loan purposes. I have a mortgage myself and a paid off car. I don't think it would be a huge blow in terms of maintaining credit. Might help if anything?
Cruise
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Re: Applying for mortgage with "no income"

Post by Cruise »

3of10 wrote: Wed Oct 14, 2020 8:56 pm Social Security (not including retirement or long-term disability).....
Can you explain what "SS, not including retirement or ltd" means?
Kelrex
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Re: Applying for mortgage with "no income"

Post by Kelrex »

It's different from co-signing because you will own the home with them. Co-signing doesn't entitle you to ownership of the property, it just makes you liable for the mortgage.

You're basically buying a house together now.

I would talk to an accountant and probably a lawyer before going ahead with this. You will get much clearer answers.
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galawdawg
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Re: Applying for mortgage with "no income"

Post by galawdawg »

OP...

You have mentioned a few times that your parents will have the income to pay the mortgage based upon the payments they will receive from the sale of their business. How "secure" are those payments? In other words, what is the risk of default of the purchaser of their business? Any idea of his/her credit worthiness? I can't help but wonder since the sale of their business to the purchaser was "seller financed" if there are issues with the purchaser that prevented the purchaser from securing a business loan.

If the purchaser of the business defaults on the payments, can your parents still afford the house, or would their ability to remain in the home at that time be completely dependent upon your providing the financial means by making the payments for them?

To answer your question about the Family Opportunity Loan, it is a conventional mortgage in your name. You would have to qualify for the mortgage under Fannie Mae underwriting guidelines. What that type of mortgage does is categorize the mortgage as a primary residence loan even though it won't be owner-occupied. That allows you to avoid the requirements for obtaining a mortgage for a second home or investment property. But again, you still have to qualify for the loan, you just don't have to reside in that home. Here is a link: https://selling-guide.fanniemae.com/Sel ... Properties

Hope that helps!
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N1CKV
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Re: Applying for mortgage with "no income"

Post by N1CKV »

nevermind.
Last edited by N1CKV on Thu Oct 15, 2020 9:47 am, edited 1 time in total.
cncm
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Re: Applying for mortgage with "no income"

Post by cncm »

I went through something similar for my dad who’s retired but has passive income (rental + Airbnb). When he tried to get a mortgage for a new home, it was incredibly difficult to get a mortgage with a competitive rate given he has no W2 income. I ended up co-signing the loan with him, made the process extremely easy, got a great rate, and have had no issues so far. But this is really a know your family situation. I trust my dad 100% and if for whatever reason he can’t pay the mortgage, I’d be happy to step up and help him. The monthly payments weren’t huge and I could easily shoulder the burden if needed.
deikel
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Re: Applying for mortgage with "no income"

Post by deikel »

local credit union is the way to go

They usually have their own underwriting and depending on their stated purpose, they have a mandate to help you establish credit (and by extension that is your problem).

Be upfront of where the problem is, they will start the application process and then work with you to satisfy their underwriter. Also consider that most banks sell off their mortgage to Fannie and Freddy if they are 30 yr fixed, but they keep the mortgage if it is 15 years - this also has impact on the underwriting. If they keep it on their books and don't pass it on, they can take 'more risk' and be more creative in the process. If they pass it on, then they must meet specific criteria given to them.

So, go for 15 years, that might help you. Ignore the rates for a start, you can refinance with the record of your current loan and the record of the payments coming in at a later time.
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sawdust60
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Re: Applying for mortgage with "no income"

Post by sawdust60 »

+1 on credit unions.. Regardless of your lender, find someone experienced with loans for retirees. Too many 'loan officers' only know how to qualify borrowers, based on their monthly income as reflected by the direct deposit into a checking account.

I also found that SS does not count, unless you are already drawing it. Somewhat true for IRA accounts, if you are not making withdrawals. But there is a formula lenders can follow for IRA balances. Another anomaly is that Roth conversions count, as they are reported as income on the tax return.

And another option, if you or parents have after tax brokerage account. Up to 100% financing.
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eucalyptus
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Re: Applying for mortgage with "no income"

Post by eucalyptus »

I second crazygrow's post above.

Loan underwriting is irrational. We had enough on deposit with Wells Fargo to immediately repay a proposed mortgage - didn't matter. Our downpayment equaled 74% of the purchase price - didn't matter. No debt of any kind, credit ratings into the 800s, didn't matter. Exhaustive investigation of our income. You're a deadbeat until proven otherwise.

Some of the private banks used to treat people rationally, understanding the value of offsetting assets. I don't know whether they still do.The regular banks are more or less twits. It's not your parents.
Bogle_Bro
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Re: Applying for mortgage with "no income"

Post by Bogle_Bro »

Bob_Sacamano wrote: Tue Oct 06, 2020 6:09 pm
willthrill81 wrote: Tue Oct 06, 2020 6:05 pm
Bob_Sacamano wrote: Tue Oct 06, 2020 6:03 pm So far the banks we have called are not playing ball. They want to see some record of verifiable income. The sale agreement and expected payments from that doesn't qualify apparently. We have a house picked out and want to go under contract but this is holding us up. I may have to cosign...
Again, do not cosign.

Have you contacted local, independent banks? What about credit unions? The latter are more likely to 'play ball' than banks, especially large banks.
Yes we're trying banks big and small. I will make more calls tomorrow.

Why is cosigning so bad? I understand I would be legally liable if my parents defaulted but that's not going to happen. They have enough savings to make the monthly payments. I also get that my credit score would take a hit but it is what it is. I have a home for myself already and a paid off car so there's nothing on my horizon that would require a credit pull.
Maybe theres nothing on the horizon, but it may limit your ability to get credit in the future since the cosign will count as your obligation
Bogle_Bro
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Re: Applying for mortgage with "no income"

Post by Bogle_Bro »

sawdust60 wrote: Thu Oct 15, 2020 10:36 am +1 on credit unions.. Regardless of your lender, find someone experienced with loans for retirees. Too many 'loan officers' only know how to qualify borrowers, based on their monthly income as reflected by the direct deposit into a checking account.
these 'loan officers' are following their banks guidelines
3of10
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Re: Applying for mortgage with "no income"

Post by 3of10 »

Cruise wrote: Thu Oct 15, 2020 12:05 am
3of10 wrote: Wed Oct 14, 2020 8:56 pm Social Security (not including retirement or long-term disability).....
Can you explain what "SS, not including retirement or ltd" means?

It's a statement from Fannie Mae. You can get the explanation from them.

https://selling-guide.fanniemae.com/Sel ... y.20Income
Cruise
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Re: Applying for mortgage with "no income"

Post by Cruise »

3of10 wrote: Fri Oct 16, 2020 3:28 pm
Cruise wrote: Thu Oct 15, 2020 12:05 am
3of10 wrote: Wed Oct 14, 2020 8:56 pm Social Security (not including retirement or long-term disability).....
Can you explain what "SS, not including retirement or ltd" means?

It's a statement from Fannie Mae. You can get the explanation from them.

https://selling-guide.fanniemae.com/Sel ... y.20Income
Thanks, now I understand the context.
gpburdell
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Re: Applying for mortgage with "no income"

Post by gpburdell »

Cactuscoug wrote: Wed Oct 07, 2020 7:16 am We've been retired for a long time. Three years ago, we moved, and took out a mortgage to bridge the transactions. We got the loan through Costco's website. We demonstrated "income" by making withdrawals from our IRA for two months.
Which lender through Costco did you use?
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