Mortgage for Retiree?

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March2009
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Mortgage for Retiree?

Post by March2009 »

If I'm a retiree with $3M in investments and no debt, approximately how much mortgage could I qualify for? Also do asset depletion mortgages have about the same interest rate as a regular mortgage?
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cadreamer2015
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Re: Mortgage for Retiree?

Post by cadreamer2015 »

The following is based on my experience getting an asset depletion mortgage and research on the subject: If your $3 million in investments are in retirement accounts, you should have a calculated income of $3 million divided by 30 years or $100,000 per year. They will qualify you for a mortgage based on usual qualification standards for that income income level. In my experience the interest rate was the same as other more conventional mortgages. Not every mortgage lender makes asset depletion mortgages. They are generally not sold by the originator into the secondary market - they are more commonly held in the originating institution’s portfolio.

My advice is to identify a couple of institutions that do asset depletion mortgages and start talking to them early in the process. The paperwork required is more than a conventional mortgage and the loan approval process takes a bit more time. But it is certainly doable.
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ubermax
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Re: Mortgage for Retiree?

Post by ubermax »

March2009 wrote: Fri Oct 16, 2020 1:38 pm If I'm a retiree with $3M in investments and no debt, approximately how much mortgage could I qualify for? Also do asset depletion mortgages have about the same interest rate as a regular mortgage?
Last year we qualified for a mortgage based on income of SS , very small pension , & our most recent RMDs from our retirement accounts - additional asset depletion amounts were superfluous in our case - my advice is to provide your lending institution(s) with everything they ask for and see what happens - underwriting departments have certain debt/income benchmarks but they also have some discretion - the rate we got was the same as a regular mortgage .
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Eagle33
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Re: Mortgage for Retiree?

Post by Eagle33 »

Are you a 36 y.o. retiree or a 66 y.o. retiree?
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ubermax
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Re: Mortgage for Retiree?

Post by ubermax »

As mentioned by a poster above , it is true that not all lenders will consider assets in their underwriting process for loan qualification but , for lenders that do, I don't think it's generally true that they merely divide a borrower's assets by 30 to produce another income component .
schachtw
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Re: Mortgage for Retiree?

Post by schachtw »

March2009 wrote: Fri Oct 16, 2020 1:38 pm If I'm a retiree with $3M in investments and no debt, approximately how much mortgage could I qualify for? Also do asset depletion mortgages have about the same interest rate as a regular mortgage?
My wife and I applied for an asset depletion mortgage from US Bank last summer.

We were approved for a jumbo ARM, 20% down in 5 days.
The bank considered:
Investment income
Wife’s pension
Social Security
No RMDs yet.
delamer
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Re: Mortgage for Retiree?

Post by delamer »

cadreamer2015 wrote: Fri Oct 16, 2020 1:59 pm The following is based on my experience getting an asset depletion mortgage and research on the subject: If your $3 million in investments are in retirement accounts, you should have a calculated income of $3 million divided by 30 years or $100,000 per year. They will qualify you for a mortgage based on usual qualification standards for that income income level. In my experience the interest rate was the same as other more conventional mortgages. Not every mortgage lender makes asset depletion mortgages. They are generally not sold by the originator into the secondary market - they are more commonly held in the originating institution’s portfolio.

My advice is to identify a couple of institutions that do asset depletion mortgages and start talking to them early in the process. The paperwork required is more than a conventional mortgage and the loan approval process takes a bit more time. But it is certainly doable.
I think they generally only consider 70% of assets to account for market fluctuations: https://www.kiplinger.com/article/retir ... tgage.html
sawdust60
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Re: Mortgage for Retiree?

Post by sawdust60 »

A credit union can also be good. Sometimes loans are kept in house. Regardless of your lender, ask to speak with someone experienced with loans for retirees and/or asset based loans. 'Loan officers' know how to qualify borrowers based on monthly income, but the rules are more complex for qualifying borrowers when assets are the basis for repayment. It likely becomes an exercise in calculating a monthly income equivalent.

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.

This program might be of interest, if you have some funds in after tax brokerage account. Up to 100% financing.
https://mlaem.fs.ml.com/content/dam/ML/ ... ayment.pdf

-- from another thread --
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/
https://guide.freddiemac.com/app/guide/topic/5300

...
BFR
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Re: Mortgage for Retiree?

Post by BFR »

From what I can gather, on asset depletion mortgages, the banks will give you leverage equal to 20-25% of your net worth.
bberris
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Re: Mortgage for Retiree?

Post by bberris »

schachtw wrote: Sat Oct 17, 2020 9:14 pm
March2009 wrote: Fri Oct 16, 2020 1:38 pm If I'm a retiree with $3M in investments and no debt, approximately how much mortgage could I qualify for? Also do asset depletion mortgages have about the same interest rate as a regular mortgage?
My wife and I applied for an asset depletion mortgage from US Bank last summer.

We were approved for a jumbo ARM, 20% down in 5 days.
The bank considered:
Investment income
Wife’s pension
Social Security
No RMDs yet.
These are regular income that would be counted in any loan. Are you saying that these were in addition to consideration of assets?
schachtw
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Re: Mortgage for Retiree?

Post by schachtw »

bberris wrote: Mon Oct 19, 2020 6:14 am
schachtw wrote: Sat Oct 17, 2020 9:14 pm
March2009 wrote: Fri Oct 16, 2020 1:38 pm If I'm a retiree with $3M in investments and no debt, approximately how much mortgage could I qualify for? Also do asset depletion mortgages have about the same interest rate as a regular mortgage?
My wife and I applied for an asset depletion mortgage from US Bank last summer.

We were approved for a jumbo ARM, 20% down in 5 days.
The bank considered:
1. Investment income (taxable & tax deferred)
2. Wife’s pension
3. Social Security
No RMDs yet.
These are regular income that would be counted in any loan. Are you saying that these were in addition to consideration of assets?
Correction/clarification:
We’re both retired, no earned income.
Our mortgage was approved on the basis of the three items listed above, plus our net worth (forth item considered).

Sorry for the omission.
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willthrill81
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Re: Mortgage for Retiree?

Post by willthrill81 »

As has been noted already, retirees can get a mortgage, but many lenders aren't interested. It can be a trying process.

I'm wondering why you would want a mortgage in retirement as having one increases your sequence of returns risk by making poor returns even worse via leverage.
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cadreamer2015
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Re: Mortgage for Retiree?

Post by cadreamer2015 »

One reason for wanting a mortgage in retirement might be if essentially all your assets are in pre-tax retirement accounts, a several hundred thousand dollar withdrawal from those accounts will put you in a much higher tax bracket, plus put you in a higher IRMAA tier for at least a year.
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ubermax
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Re: Mortgage for Retiree?

Post by ubermax »

cadreamer2015 wrote: Mon Oct 19, 2020 9:23 am One reason for wanting a mortgage in retirement might be if essentially all your assets are in pre-tax retirement accounts, a several hundred thousand dollar withdrawal from those accounts will put you in a much higher tax bracket, plus put you in a higher IRMAA tier for at least a year.
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rich126
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Re: Mortgage for Retiree?

Post by rich126 »

Then it seems like if you are near retirement and considering buying a house, it may be best to get a mortgage with your current salary. Then once you are in retirement, if you want to, you can pay it off.

Otherwise it seems like it is more of a hassle and you may not qualify for the same sized mortgage?
ubermax
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Re: Mortgage for Retiree?

Post by ubermax »

rich126 wrote: Wed Oct 21, 2020 11:13 am Then it seems like if you are near retirement and considering buying a house, it may be best to get a mortgage with your current salary. Then once you are in retirement, if you want to, you can pay it off.

Otherwise it seems like it is more of a hassle and you may not qualify for the same sized mortgage?
Paying it off with pre-tax investments will still trigger a huge tax hit for many retirees
Golf maniac
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Re: Mortgage for Retiree?

Post by Golf maniac »

Here is the exact verbiage from the FNMA sellers guide:

If retirement income is paid in the form of a distribution from a 401(k), IRA, or Keogh retirement account, determine whether the income is expected to continue for at least three years after the date of the mortgage application. In addition
the borrower must have unrestricted access without penalty to the accounts; and
if the assets are in the form of stocks, bonds, or mutual funds, 70% of the value (remaining after any applicable costs for the subject transaction) must be used to determine the number of distributions remaining to account for the volatile nature of these assets.
Documentation of asset ownership must be in compliance with the Allowable Age of Credit Documents policy (see B1-1-03, Allowable Age of Credit Documents and Federal Income Tax Returns, for additional information).

So, you should be able to qualify. Check with your loan officer and they should easily guide you through the process.
phxjcc
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Re: Mortgage for Retiree?

Post by phxjcc »

Take your AGI.

PITI to income should be < 32 %
Total DTI < 36%

DTI is this case is obviously payments on the debt.
Topic Author
March2009
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Re: Mortgage for Retiree?

Post by March2009 »

Eagle33 wrote: Sat Oct 17, 2020 12:21 am Are you a 36 y.o. retiree or a 66 y.o. retiree?
Age = 54
In bear markets, stocks return to their rightful owners. - J.P. Morgan
MathIsMyWayr
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Re: Mortgage for Retiree?

Post by MathIsMyWayr »

ubermax wrote: Fri Oct 23, 2020 3:13 pm
rich126 wrote: Wed Oct 21, 2020 11:13 am Then it seems like if you are near retirement and considering buying a house, it may be best to get a mortgage with your current salary. Then once you are in retirement, if you want to, you can pay it off.

Otherwise it seems like it is more of a hassle and you may not qualify for the same sized mortgage?
Paying it off with pre-tax investments will still trigger a huge tax hit for many retirees
Let me put myself in the banker's seat. Would I rather lend a mortgage to a 65 year old wage earner without much savings or to a 65 year old retiree with a sizable savings?
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