9.04.2013

On Mortgage Loan Qualifications for Retirees

Loan Qualifications for Retirees
Excerpt:


Retirees trying to obtain a mortgage may find that a pristine credit history and healthy retirement accounts are not enough. Lenders are also looking for a consistent monthly income in line with their usual debt-to-income standards.

Sanford Evans, 75, ran up against this requirement recently when he applied for a $174,000 loan to finance the purchase of an apartment in the Riverdale section of the Bronx. With brokerage accounts exceeding $1 million, a TransUnion credit score of 822, and the ability to make a 40 percent down payment, Mr. Evans didn’t anticipate any problem with qualifying. “I would have paid cash,” he said, “but the interest rates are so low it didn’t make financial sense to do it. I figured this was going to be as easy as it’s been in the past.”

But despite the loan officer’s initial assurances that the loan would close quickly, Mr. Evans, who was moving from a condo in Boston, endured delays that dragged on for months. The problem, he was told, was his income. He received Social Security and monthly dividend distributions, and supplemented these earnings with part-time medical writing for a Boston hospital. Yet he still came up short. The lender wouldn’t count the writing income because he was moving away from Boston.
Comment: We've heard this same story from 2 retirees we know.

4 comments:

  1. I grew up thinking that it was insane to get a loan that you were unlikely to outlive....and even today, I'm thinking that as boomers retire, we're not going to get the fat yields on stocks and bonds we've seen since the Depression, so the difference between mortgage interest and stock returns is not going to be that great....

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  2. I was having a conversation with a former 4th Deacon that you know. Think a guy that paints.

    He and his wife want to move closer to the church in Otsego.

    They wanted to buy a house in Otsego ... move there ... and then sell house in Brooklyn Park.

    So there situation is a bit like ours. We want to buy a condo in Minneapolis or St Paul ... move in ... and then sell house in Plymouth.

    The issue is that one's income for the purpose of the mortgage qualification is social security + pension. But $$'s that could be withdrawn from IRA's don't count.

    Solution that we have found (but not tried): Have a HELOC at the value of 80% of home A. Have cash in hand of 20% of value of home A. Buy house (or condo) B with house A's HELOC + cash in hand. Sell house A ... pay off HELOC.

    Advantage ... no need for a mortgage.

    My own philosophy is to have NO mortgage in retirement - indeed no debt in retirement.

    That's where we are now.

    But some make the case of having a mortgage. It goes like this: Say the mortgage interest is 4.5% ... but one can make 8% in the stock market. Plus one get's mortgage interest deduction on taxes.

    Could work! Not my preference!

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  3. We did a HELOC to buy our house in Waseca--worked pretty well, really. Our actual ration was about 60% debt to value on the Chaska house, but it was otherwise pretty good.

    Can't quite figure out who you're talking about, though. But no worries; when I was there, I didn't know what everybody did, either. :^)

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