Getting a mortgage in retirement (pensions, financial advisor, social security, federal)
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My wife and I have been retired for about a year and a half. We've been quite nomadic since but someday might want to settle down in the US and buy a house again.
So my question = is it possible for retirees with no paycheck income to qualify for a mortgage? We live on our investments and obviously we could document total net worth, history of dividends income, ability to fund lifestyle by selling assets etc. but not sure how well that qualifies a mortgage. We're still decades away from social security so won't have that.
We could always just buy a house outright (with possible cringeworthy income tax implications) but if interest rates are anywhere near current levels I'd definitely be interested in the option of financing.
So do any of you retirees have experience with obtaining a mortgage on primary household after wearing your golden watch? Thanks in advance for wise counsel
-ignorantme
You could have $10 million in a retirement account, but if you don't show 'income' you won't get a loan. They were laughing on CNBC last year that Jim Cramer was having trouble getting a mortgage approved.
Lenders want to see a regular monthly income stream - not irregular withdrawals as you need money. SS, pensions, any scheduled regular withdrawals from your investment accounts. It may be necessary to set up a monthly withdrawal from your investment accounts - at least until you close on the loan. Account has to show it can withstand at least three years of withdrawals. I, and others here, have had to do this silly maneuver just to qualify - and then cancelled the monthly installments after closing.
Overall installment debt should probably not exceed 32% of your monthly gross income; debt service, taxes, insurance somewhere between 25-28%, although with a large enough of a down payment, lenders will stretch on those ratios.
You should be ok.
Your income tax return for several years will help support income.
Your brokerage statements will also help split your cash flow between income and selling assets. 1099's will make it easier.
Your IRA accounts will have income in them that you may also be able to claim for the mortgage.
You maybe able to use RMD from IRA's?????
Assets alone will not do it as the banks have to meet Federal standards.
I wanted a mortgage for the same reasons mentioned: low interest rates, a tax break, and to have a larger portfolio to invest. My wife and I had been retired for two years and had spent most of that time traveling. We were told that we were pre-qualified, but when it came time for the actual mortgage, getting approval was not easy. I had planned to delay taking social security for a couple more years but needed to show income beyond just interest and dividends. It seems assets are not worth much towards qualification and interest and dividends are not considered reliable income even though we had assets worth many times the cost of the house. Next I had to schedule a down payment of 40%. Even then every aspect of our finances was examined and questioned. The bank delayed approval beyond 3 months and then I had to resubmit financial statements. They approved the loan towards the end of the fourth month.
After three years, I am glad we have the mortgage. The first two years our conservatively allocated portfolio returned more than twice what the mortgage cost. The past year our portfolio had a negative return even so for the three years I am ahead by $30,000 over where I would have been without a mortgage. Over the life of the mortgage, if I live that long, I expect to be ahead by several hundred thousand dollars. The impact on income taxes has also resulted in a substantial reduction.
John, I don't like to be called "dumb dumb dumb." I have been given forum time outs for much less.
In any case I do understand you have a strong opinion. I would like some explanation that goes with your opinion. The OP can afford to buy a house but thinks a mortgage is a good idea. I did the same thing. I can pay off my mortgage tomorrow and still have investment income to support my lifestyle. Instead I have made $30,000 off the money I mortgaged and I expect to make a lot, lot more over the years. Why is this dumb dumb dumb? And please don't tell me it feels good not to have a mortgage. For me it feels good to be making money off my mortgage.
I easily got a mortgage after being retired 12 years. I downsized and had a huge downpayment from the sale of my previous home. My income was more than sufficient for the approval of the remaining mortgage amount. I pay less than rent for a two bedroom apartment. I could pay it all off tomorrow if I wanted but I like having investments and a nice cushion for things I want to do. If push comes to shove, I have equity in the house for major repairs if needed. There is a little mortgage tax advantage but not much. Everybody has their own comfort level equation.
A -- Take the amount of the mortgage, figure the interest paid on it - minus the tax break. (IF you can itemize it.)
B -- Compare that to gain that could be earned on the mortgage amount if invested - minus any taxes due.
Whichever one NETS the most after all expenses/taxes in the winner.
I've heard some financial advisors say one should always have a mortgage for the tax break and in many cases the ability to itemize. Well it's not that simple. You also have to keep the mortgage high enough so that the interest puts you over the itemization threshold. If not, I don't know that it makes financial sense strictly by numbers to have a mortgage. But I guess that's whether the math comes in.
Maybe I've looked at it too simplistically. But that's the way I like my investing. Simple and MOTR risk. I'll have a paid off mortgage in retirement. So I should go GET a mortgage, instead of living mortgage free? So I can TRY to make more on it in investments? Too complicated for me.
Why would anyone want a mortgage when you don't have to have one? Buy a small house and pay cash. F the banks.
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