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About 7 years ago, I found an ARM structured as a 10/1, with the first years interest-only at 2.85%, then floating with a cap of 4.85%.

These days, you probably won't find an I/O ARM with a 10 year initial rate lock. You might find one where you can pay I/O for the first 10 years, but the rate will probably only be fixed for the first 5 years. And even if you do find one, the rates are likely to be, at most, 1/2 point lower than the 30 year fixed, which means that the lifetime caps are probably 4.5% higher than the 30 year rate. And because of the I/O feature, they may even be as much as the 30 year rate. Not worth the risk unless you are absolutely sure you are going to be out of the property in a few years.

Altogether, we slashed our payments by over half.

Half compared to a 30 year fixed rate at that time, or half compared to your prior mortgage? If you're comparing to the prior mortgage, how much would you have been able to save if you had just refinanced into a 30 year fixed rate instead?

3) If interest rates dropped, so would our payment.

For mortgage interest rates to drop from where they were 7 years ago, we would have to have negative Treasury rates. It can happen, but I'm not sure that it's working out that well in Europe right now, since their GDP growth rates have been decreasing https://tradingeconomics.com/european-union/gdp-growth

4) If interest rates grew, we'd look at what our current mortgage offered & refi if needed or just pay off the loan through our savings. (The savings from the loan wouldn't itself be enough, but it'd be close enough for us to pull cash and pay the loan off.)

With a lifetime cap of just 2% (4.85% - 2.85%), that's a pretty small risk to take. Lifetime caps on ARM offerings are usually 5%, with 2% annual caps. That's quite a bit more risk to take.

AJ
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That's fantastic!

I'm curious - if you don't mind sharing - what sort of return-on-investment rate you expect for your nest egg accounts over the next several years?

I only ask because it seems typical that younger folks invest in riskier stuff, having a longer time frame in mind, and expecting 7% or 8% long term returns. But older, retired folks often lean more towards safer, income type investments that generally might expect to have lower returns, since they have a shorter time frame to consider and don't want to suffer down markets.

Would you still expect your investments to beat that mortgage rate? Or did you decide it would be insane not to have the mortgage for other reasons?

xtn
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I'm curious - if you don't mind sharing - what sort of return-on-investment rate you expect for your nest egg accounts over the next several years?

I only ask because it seems typical that younger folks invest in riskier stuff, having a longer time frame in mind, and expecting 7% or 8% long term returns. But older, retired folks often lean more towards safer, income type investments that generally might expect to have lower returns, since they have a shorter time frame to consider and don't want to suffer down markets.

Would you still expect your investments to beat that mortgage rate?


I anticipate our investments will make 3.625% and then some. My I-bonds make more than that. But the anticipated return we used in looking at retiring was only 4%. If we earn 4% we will never touch principal. We retired in our 50's so our investment time frame is not a short one. We have a balanced stock and fund portfolio and with our future SS and pensions counting towards our "bond" allocation we are primarily investing in stocks, though some of those also give a very nice dividend, making them somewhat bond like. Even our current home, which we are putting into the rental market, should return over 6% fully managed and without annual appreciation, closer to 15% since I will manage and we anticipate a low ball for this area increase in value at a minimum 1.5%. (Great 10 year profit projection spreadsheet for long term rentals can be found here: https://www.mortgage-investments.com/resources/spreadsheet-d... go to 3rd download. It's honestly hard not to average at least 3.625% over time. Year to year is different, but over 30 years, hard not to.

I have tempered my risk tolerances to accommodate DH and our lack of jobs. What I do may certainly not be for everyone, but with our resources I feel confident it will work for us. Or as I told Eldest when he graduated college and landed a great paying job, we'll move in with him if we fall on tough times. (Kidding, really. Last thing I would do.) No doubt helps that we are not big spenders when it comes to depreciating assets.

Personally, I think most retirees are too conservative with their allocations. Then again Dad died at 87 still 100% invested in stocks, so my bias shows.

IP
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And honestly, with today's market action, I bet you could get an even lower rate than we got.

IP,
honestly not complaining
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And honestly, with today's market action, I bet you could get an even lower rate than we got.
From what I can tell looking at bankrate the rates are moving around quite a bit from day to day over the last 2-3 days. (lots of economic news lately)
And of course it depends on cash-out (or not), credit score, etc.

I'm hoping to do a 3.125% 15-year loan for 0 points, <$2500 in appraisal and other fees.
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From what I can tell looking at bankrate the rates are moving around quite a bit from day to day over the last 2-3 days. (lots of economic news lately)...

More political than economic, IMO. I was concerned that all it would take to jack the rates back up was a tweet from Trump, since that was what sent it down. Mortgage broker said the rates didn't move when the Fed reduced rates as lowering of 25 basis points was already in the numbers from the day before. But when Trump tweeted about tariffs...

Good luck.

IP
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IP,

Thanks for the great reply. Sounds like you know what the heck you are doing.

xtn
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How much trouble did you have getting the mortgage given that you are retired and have no income? We may be on the market for a piece of rental property, and as I am retired but we have enough assets to pay cash for the house, I'm wondering how hard it would be to get a mortgage. I'd love some details on that part of your experience.
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2gifts wrote:

I am retired but we have enough assets to pay cash for the house, I'm wondering how hard it would be to get a mortgage.


Check into an Asset Depletion mortgage. It is what we did a few years ago after being retired and having no earned income (Capital gains is not a salary). Has been perfect and we have made far more on it than the 3.25% rate we are on. Even though we pay interest, feels like we are living "free" in that principal continues to increase.

Basically, they take the sum of assets and divide by 360 and use that as your "monthly income" for loan calculation. Not everyone does them, ours is through Wells Fargo, I know a bad name to many, but they have been great for us. They were about the only ones willing to discuss the size of the loan we needed.

LakeD
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How much trouble did you have getting the mortgage given that you are retired and have no income? We may be on the market for a piece of rental property, and as I am retired but we have enough assets to pay cash for the house, I'm wondering how hard it would be to get a mortgage. I'd love some details on that part of your experience.

Not inparadise, but going through this right now - buying my first rental property without counting any income from work. While I was working, it was easy to purchase rental properties. It's a little more complex when you're not working - but it's still doable.

First of all - be sure that your application states that this will be used as a rental property, not as your principal residence. You will likely have to pay a higher rate, but it's mortgage fraud to declare that a property will be your principal residence when it's actually going to be a rental property. And if you don't have income from work, and don't state that it will be a rental property, you won't be able to use the potential rental income to help you qualify.

You can generally use 75% of the expected monthly income from the rental property as income to qualify. It helps if it's already a rental property and has documented income, otherwise, you'll have to use the appraiser's estimate of the rental income. (BTW - you generally have to pay more for the appraisal on a rental property, since the appraiser needs to appraise 2 things: the value of the property and the income for using the property as a rental.)

If the allowable rental income isn't enough income to qualify you for the mortgage, you have to have other documented income. If you have documented dividend/interest income from taxable accounts on your last 2 tax returns, that can be used. If you have income from other rental properties documented on your last 2 tax returns, that will help, too. If your last two tax returns show any self-employment income that will continue, that will also help.

If you don't have enough documented income from other sources, you will probably be required to set up a withdrawal from your retirement account. The administrator of your retirement account will have to document that you have set up to have a regular withdrawal of $X per month from your account. You will have to show at least one deposit into your checking account (possibly 2 or 3, depending on your lender's requirements) from that arrangement. (Note: if your lender requires more than one deposit into your checking account, and you only want to have to show one*, ask your lender if you can set it up as a quarterly withdrawal.

*You might not have to wait for more than one withdrawal to hit your account, or you might want to roll that withdrawal back into your retirement, if it's been less than 60 days. If you are going to roll the withdrawal back in, you can only do that with one withdrawal, and only as long as you haven't done another non-trustee-to-trustee rollover into that individual's accounts within the last 12 months. Please keep in mind, after you close on the loan, there won't be any "IRA police" checking to see if you are continuing to take withdrawals. If you want to cancel it immediately after you close, be sure that the administrator on the account will allow you to do so.

AJ
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Check into an Asset Depletion mortgage. It is what we did a few years ago after being retired and having no earned income (Capital gains is not a salary).

Sorry, that won't work in this case.

You missed a critical piece of information in your reply, that this mortgage would be for a rental property.

Asset Depletion Mortgages are only allowed for your principal residence. I know this because I am in the process of buying my first rental property after retiring, and I was on the edge of showing I had enough income. My loan officer looked into using Asset Depletion for the needed income, but said it's only available for mortgages on your principal residence. Luckily, my issue was resolved by adjusting out the large one-time expense for taking out a tree that had grown too close to one of my rental properties, so I didn't have to set up a regular withdrawal from an IRA account, as mentioned in my previous post.

AJ
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Thanks. This is very helpful. I am aware of the additional rate and down payment required for rental property (we've had rentals before). It was just the mortgage that we would most likely want that had me unsure.

If the allowable rental income isn't enough income to qualify you for the mortgage, you have to have other documented income. If you have documented dividend/interest income from taxable accounts on your last 2 tax returns, that can be used. If you have income from other rental properties documented on your last 2 tax returns, that will help, too. If your last two tax returns show any self-employment income that will continue, that will also help.

Ok, playing with some numbers, I can see that our taxable dividends plus DH's self-employment income would do it. I'd really prefer not to have to take anything out of the IRAs, and actually find that pretty interesting. You'd think that with more assets in our taxable accounts than in our IRAs that we would be able to say we'd use that vs. creating what is viewed as an income stream by forcing IRA withdrawals. Just seems silly to me, but I realize that if I want a mortgage, I don't get to set the rules.

I'd still be interested in understanding how IP did it, though I think they have a pension which is not something that is applicable to us.
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You missed a critical piece of information in your reply, that this mortgage would be for a rental property.

As always, you are absolutely correct. Too many things to read, skimming has become a risk! ;-)

LakeD
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How much trouble did you have getting the mortgage given that you are retired and have no income?

None at all, though I can't really tell you how it was done other than it was a combo of some income from contracting and capital gains/dividends/interest that we reported on our taxes last year, as well as looking at our assets. We've used Dan Cohen at Amerisave for 3 mortgages now and he knows our assets and liabilities well enough that he puts the deal together, but done in a very tight way since Amerisave sells off the loans almost instantly. I know he did not use projected rent from our soon to be rental, trying to keep the loan as clean and simple as possible. We allowed 25 days from ratification to closing in this contract and it looks like things should be ready a week early. Of course, we don't delay in getting them what they want and keep the pressure up on everyone else to make sure they do the same.

It's nice having Dan on our team. Because he has so many years of our info he can give us a quick unofficial thumbs up or down when we are considering a property. He's made what is typically a frustrating process relatively smooth and easy every time.

IP
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How much trouble did you have getting the mortgage given that you are retired and have no income?

And sorry, I wasn't really clear on the income bit. DH still contracts for his previous employer on an as needed basis, though we could only use the very limited amount of contractor income he had declared for taxes last year. Most of the 2018 income could not be counted given his retirement. We won't be taking pensions for another 5 years or SS for another 10, but I have reconfigured our investments to provide more dividends this year. Sadly that too won't count in our favor until it appears on our taxes for 2019. They really don't use what you are currently earning if it's not in a regular paycheck. Has to have been on your taxes.

Not sure that helps but there you have it.

IP
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Nice job ip! Best I can find today is 3.75% no points.
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Best I can find today is 3.75% no points.

That surprises me given all the bad economic news that has happened since we locked in. Did you try Amerisave?

IP
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I looked at both Amerisave & AIMLoan. nothing anywhere near 3.125% @ 0 points.

3.875% with small lender fee at AIM
or
3.25% at 2 points and $1000 lender fee.
Total fees for $225K loan: $7200.

Yuck.
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I looked at both Amerisave & AIMLoan. nothing anywhere near 3.125% @ 0 points.

Well 3.125% would have been fabulous, but not what we got. The rate was 3.625%. Was 3.875% when we applied and chose not to lock given the expectation of the Fed lowering rates on 7/31.

I feel better now for hopping on it immediately. Was figuring I had left some money on the table, not that I can really complain about the rate we got. With a White House that governs by the tweet, the news cycle can change in a flash. I wasn't taking the risk of a new tweet reversing the rate situation instantly, as it seems to sometimes do for the stock market.

IP
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Well 3.125% would have been fabulous, but not what we got. The rate was 3.625%.

Whew!! Guess I mis-read your original post.

Alas, even that isn't my refi target rate. My target is 3.5%, so it looks like I'm stuck at 4.0% for a while longer.

Rather than messing around with things like "Asset Depletion mortgage", a loan processor told me long ago that if you have a steady monthly withdrawal from an IRA they look at that like it was a paycheck. So a couple months before you intend to apply, give your broker instructions to withdraw a certain amount and send it to you monthly. That fits in with your RMD, if you are subject to RMD. Since you have to withdraw the money anyway, might as well do so in a way that the mortgage lenders like to see.
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Since you have to withdraw the money anyway, might as well do so in a way that the mortgage lenders like to see.

And my guess is once the loan is set up and running, if that monthly RMD W/D isn't to your liking you could change your RMD withdraw back to your preference*. I don't think that would be considered mortgage fraud PROVIDED you serviced/paid the loan according to its provisions.

I think of it akin to losing any income stream (job, etc) used to qualify for the loan. As long as you're making payments on time, your loan probably isn't looked at after the initial approval unless they're selling it. But that's a guess & I could be wrong since it would be a voluntary action changing the W/D.


* I prefer to take it early but the market might dictate otherwise in some years.
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Rather than messing around with things like "Asset Depletion mortgage", a loan processor told me long ago that if you have a steady monthly withdrawal from an IRA they look at that like it was a paycheck. So a couple months before you intend to apply, give your broker instructions to withdraw a certain amount and send it to you monthly.

Yes, income from IRA distributions work, but we are not looking to draw on IRAs for 10 more years. Our mortgage broker referred to this as an asset based mortgage, so not sure if that is the same as an asset depletion mortgage, but if so, it was very easy to do. Just sent two months worth of statements for the accounts we wanted to be considered. Super easy.

One caution is that you can't use cash out mortgages for this, so we would have been stuck paying cash had the mortgage not been approved in time. But offering cash no mortgage contingency was the best way to get this house. We were told there were 3 back up offers on the home, hoping for the contract to fall through. It appraised for a decent amount more than we paid and if we had not come in strong right off the bat, there was a very good chance a bidding war would have broken out. Feeling very lucky, though it didn't hurt I knew the market well enough to recognize a good property and good deal when I saw it.

IP
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And my guess is once the loan is set up and running, if that monthly RMD W/D isn't to your liking you could change your RMD withdraw back to your preference*.

You mean change your monthly withdrawal, not your RMD. Technically you can't change your RMD, your Required Minimum Distribution. That is set by your age, and your total IRA balance at the end of the previous year. You can withdraw more than the RMD, but if you withdraw less there are penalties.
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Yes, did not mean change the "R"MD amount. Sorry if that was not clear.

Just meant if you used to take your RMD as lump sum/early/late, but needed to establish "monthly paychecks" for bank's loan purposes as suggested, once the loan was approved, pay a month or two while getting monthly distributions, you should be able to revert to your previous method without risking fraud provided payments continue if you choose. But I don't know for sure.
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And my guess is once the loan is set up and running, if that monthly RMD W/D isn't to your liking you could change your RMD withdraw back to your preference*. I don't think that would be considered mortgage fraud PROVIDED you serviced/paid the loan according to its provisions.

Of course it's not mortgage fraud. Fraud is when you tell a lie.

In fact, the loan officer explicitly said to me that you can do anything you want after the loan closes. She pointed out that somebody could lose their job and their paycheck after the loan closes, too. There is no guarantee or promise that you income will never change after closing, they just want to see the income stream in order to QUALIFY.
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I retired with a pension about 16 months ago. I work PT as well. My wife works FT.

Since my retirement, we have closed on 8 rental units. Some we bought together and some we bought in one or the others name.

We currently have 10 rental units, 4 local and 6 out of state. I just closed on a house last Friday and there's one other I close on in September.

My pension counts towards qualifying for a mortgage. And, some of the rent does as well. We've been basically told that as long as we can get the downpayment, we are going to qualify.

Fool on,

mazske
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Asset Depletion Mortgages are only allowed for your principal residence.

The properties that are acceptable are up to the creditor. Primary / Second / Investment

Yes, income from IRA distributions work, but we are not looking to draw on IRAs for 10 more years. Our mortgage broker referred to this as an asset based mortgage, so not sure if that is the same as an asset depletion mortgage

This is the same. Asset [Based, Depletion, Dissipation] all names for where the creditor assigns an income stream to the assets you have. Don't have to actually be drawing down IRA/401 or any other account to prove the income. Some creditors will straight up divide the amount by 360, while others will calculate some return. 10 year treasuries or the like.

One caution is that you can't use cash out mortgages for this

Also a creditor choice. If a house is purchased with cash and you need to replenish that investment account, while not in the underwriting guidelines some creditors (company I work for) will allow it if requested.

The reason we do that is just geared for the situation IP was in. Back up offers, bidding, getting the best cash deal... Way to recognize a good deal IP!!!

d(cash is king)/dTarr
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The properties that are acceptable are up to the creditor. Primary / Second / Investment

Seconds and investment properties are only allowed if you find a creditor who is willing to make non-qualified mortgages. And, of course, those mortgages will probably be at a higher rate.

This is the same. Asset [Based, Depletion, Dissipation] all names for where the creditor assigns an income stream to the assets you have. Don't have to actually be drawing down IRA/401 or any other account to prove the income. Some creditors will straight up divide the amount by 360, while others will calculate some return. 10 year treasuries or the like.

Again, only for non-qualified mortgages. Qualified mortgages have a specific formula that must be followed for asset-based mortgages:

Qualifying Income from assets = (70% of 'available assets' - down payment/closing costs)/360, where 'available assets' are assets not being used to produce other income that's being counted toward qualifying income, and the assets can be withdrawn without penalties - so it helps if you're over 59 1/2

Also a creditor choice. If a house is purchased with cash and you need to replenish that investment account, while not in the underwriting guidelines some creditors (company I work for) will allow it if requested.

As long as the mortgage is made within 90 days of the initial purchase, it's still considered an acquisition mortgage, not a cash-out mortgage. If it's been longer than 90 days, it would be considered a cash-out mortgage, which would not be a qualifying mortgage. So again, you would have to find a lender who was willing to make non-qualifying mortgages. So I guess the company you work for makes non-qualifying mortgages?

AJ
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Again, only for non-qualified mortgages.

AJ

You say non-qualifying mortgage like it is a bad thing :)

This is no way means the borrower does not qualify, i.e. low/no doc, stated income. This just means is doesn't qualify for some federal safe harbors. I am sure you know - but for other readers on the board. Don't let the term non-qualifying mortgage (non QM) leave a bad taste in your mouth - or your pocket book. All it really means is the loan won't be sold to Fannie. So creditors hold it on their own balance sheet. And because they retain the risk, most are actually very well underwritten and have lower default risk.

Yes, there are many creditors who do non QM loans.

The rates are the same as any second or investment so using different source of income in the gig economy, for baby boomers, self employed is becoming more common.

d(non-QM)/dTarr
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You say non-qualifying mortgage like it is a bad thing :)

No, just a more expensive thing, in my experience.

The rates are the same as any second or investment

Can you provide some examples of the rates being the same? In my experience, the rates on loans that aren't being sold to Fannie/Freddie have been higher than the rates for the same loans that are being sold to Fannie/Freddie.

AJ
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Qualifying Income from assets = (70% of 'available assets' - down payment/closing costs)/360, where 'available assets' are assets not being used to produce other income that's being counted toward qualifying income, and the assets can be withdrawn without penalties - so it helps if you're over 59 1/2

Does this mean that if someone has available assets that are more than the mortgage that they are qualified?



Don't have to actually be drawing down IRA/401 or any other account to prove the income.

Several years ago when I was doing a refi I showed them my IRA (balance greater than the loan) but they didn't care about that. Impressed, yes. Care about what the prospective withdrawal/income was, no.
What the underwriter wanted to see was confirmation that the broker was directed to distribute $X/mo to me, *and* to see a copy of the check or my checking account statement showing the deposit(s).

So I filled out the withdrawal direction form at the broker, they send me an acknowledgement letter, and they sent me the first check. Which I did not cash. After the loan closed I called the broker and told them I wanted to re-deposit the check since it was within the 60 day rollover cut-off. The broker said, "Naw, you don't need to do that, I can just cancel the withdrawal and you just shred the check."

Things were different & simpler on my refi last month. Guess they are seeing a lot more baby-boomers retiring with large-ish 401K accounts. That first refi, the loan officer had never encountered that situation before. This last time, they were used to it.
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Does this mean that if someone has available assets that are more than the mortgage that they are qualified?

No. It means that if someone has $1MM in assets that are not being used to produce their income, in addition to their down payment and closing costs, they have monthly income of (.7 x 1,000,000)/360 = $1,944 towards the mortgage, in addition to any other income that they have, like SS or a pension.

Then, for a qualifying mortgage, up to 42% of your monthly income can be used for the mortgage, so, $1,944 x 42% is $816 At a rate of 4%, that $816 would allow you to qualify for a mortgage of about $171k, or a $213k house with 20% down.

If you have other monthly income, like SS, of $2k/month, that would bump the allowed mortgage payment up to $1656, which would qualify you for a mortgage of about $347k at 4% With 20% down, that would mean you could afford a $433k house.

What the underwriter wanted to see was confirmation that the broker was directed to distribute $X/mo to me, *and* to see a copy of the check or my checking account statement showing the deposit(s).

Yes, they still want to see that the broker/account administrator is sending you the money, and see that amount deposited into a checking account. It would depend on the lender if they would qualify you by just seeing an uncashed check - some lenders like to see at least 2 deposits into your account, so just showing one uncashed check wouldn't work.

Things were different & simpler on my refi last month.

How so? They look at the documented income on your last 2 tax returns to qualify you for a mortgage. I seem to recall that you have SS and are pulling money from your retirement accounts, in addition to getting dividends, interest and capital gains from taxable accounts. If that's the case, then you probably had enough income documented on your tax returns to qualify, and didn't need to show any additional income. If the income documented on your tax returns hadn't been enough to qualify you for the mortgage, then you may well have needed to set up an additional withdrawal from your retirement accounts.

AJ
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Guess they are seeing a lot more baby-boomers retiring with large-ish 401K accounts. That first refi, the loan officer had never encountered that situation before. This last time, they were used to it.

Hey Ray,

Interesting times in house purchasing. Some younger folks are getting pushed out due to price but all cash purchasing is going up! (even in non-investment activity) These folks are baby-boomers with large-ish 401(k)'s or other investment accounts. Others who worked hard and are now having a liquidity event like selling a business, simply downsizing, getting an inheritance (maybe not such hard work). Clearly most of the wealth management firms have mortgages geared toward this type of clientele and are fluent in this and gig economy type issues. Merrill has a program for new doctors who may be buried in student debt but the earnings forecast looks pretty good. Morgan has made efforts to bring mortgage offerings up to compete including asset dissipation I believe (Elon Musk hit them up recently for 4-5 loans). But even the smaller lenders are having to learn to speak this way to compete. There is still a large population of firms and underwriters that have a box to check because they carry the risk of not being able to sell off the loan once it is closed. But I think things are getting better / easier. Hopefully fintech can put together some better out of the box type of mortgage lending solutions.

d(baby-boomer buyer)/dTarr
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No, just a more expensive thing, in my experience.

Yes, some times, for some lenders, more perceived risk means reward/price goes up accordingly. IMHO sometime they believe they have a captive audience. Balance sheet lenders offer these to take care of clients long term and a few have small loan adjusters. Sometimes offset by the discount for assets at that level. Some just see the irony of; in order to lend on assets you have to make the client demonstrate they are actually depleting those assets! Or the silliness in; if a client has amassed $10MM and can pay for the house with cash, jacking up the price on a $1MM mortgage when there is really no "incremental" risk.

d(client friendly)/dTarr
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They look at the documented income on your last 2 tax returns to qualify you for a mortgage.

They didn't even request to see any tax return. That surprised me. Last time they wanted to see all ~30 pages of the return.

I seem to recall that you have SS and are pulling money from your retirement accounts, in addition to getting dividends, interest and capital gains from taxable accounts.

I was all prepared, told the loan officer that my scheduled monthly draw from the retirement accounts was $x000 but I rarely took that much, only took as much as I needed for the current bills. She didn't care, and they never asked anything about it again. I was prepared to show them whatever they wanted.....but they never asked.


some lenders like to see at least 2 deposits into your account, so just showing one uncashed check wouldn't work.

This is the 6th time we've refinanced this house, in addition to the original purchase mortgage. Every time it is different. Every time they ask for different things, and sometimes they don't care about something they were insistent about on a previous time, and sometimes vice-versa.

I still don't quite understand all the jobs. There is the loan officer, who is the original contact and the one who takes all your numbers. Then the loan processor who -- I guess -- collects & validates all your financial paperwork. And once the loan processor come in, the loan officer doesn't want to talk to you anymore. Then there is the "underwriter", who you don't get to talk to, who evidently tells the processor what if any additional paperwork they want to see.

I think it is this underwriter who is the one that gets picky about exactly what documentation & paperwork they want to see. It always feels like an ad hoc thing, because different ones get picky about different things.

for a qualifying mortgage, up to 42% of your monthly income can be used for the mortgage

Whoa! Back in the day the ratios were like 28% and 36%. Now you're saying the front-end ratio is 42%?? Or is that the total DTI?


If the income documented on your tax returns hadn't been enough to qualify you for the mortgage, then you may well have needed to set up an additional withdrawal from your retirement accounts.

Yeah, the first time, before I knew the magic words, I argued that this was silly, since I could start the necessary withdrawals now and stop them after the loan closed. They said, "Yes, I agree it is silly and you can certainly do that....but this is the requirement." And it had to be a pre-directed automatic fixed withdrawal, not a manual draw of an arbitrary amount. Silly, but there it was.
Bureaucrats. Reality consists of only what is on the form. And if the right data is in the right line of the form they don't care if it is ephemeral.
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As long as the mortgage is made within 90 days of the initial purchase, it's still considered an acquisition mortgage, not a cash-out mortgage.

I was told not even one day later on our asset based mortgage. It was with Amerisave and they sell their loans almost instantly, so perhaps it's just being conservative on their part, perhaps he didn't know what he was talking about, though its the 4th loan we do with him and he's always been spot on.

IP
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They didn't even request to see any tax return. That surprised me. Last time they wanted to see all ~30 pages of the return.

Okay, I recall you are a serial refinancer. Was your most recent finance sometime this year, so that they already had your most recent tax returns on file? If not, are you sure you got a loan that was backed by Fannie Mae or Freddie Mac? Because Fannie/Freddie loans require solid verification of income, which generally means tax returns.

I still don't quite understand all the jobs. There is the loan officer, who is the original contact and the one who takes all your numbers. Then the loan processor who -- I guess -- collects & validates all your financial paperwork. And once the loan processor come in, the loan officer doesn't want to talk to you anymore. Then there is the "underwriter", who you don't get to talk to, who evidently tells the processor what if any additional paperwork they want to see.

Well, it depends on your lender. On my most recent mortgages, my loan officer has always been my contact, even after the processor and the underwriter get involved. She's the one who lets me know what additional information the underwriter needs, but she still had a processor assembling things for the underwriter.

I think it is this underwriter who is the one that gets picky about exactly what documentation & paperwork they want to see. It always feels like an ad hoc thing, because different ones get picky about different things.

It's more likely that something in the lender's processes, or the investor's rules, changed since your prior refinance. Lenders are always trying to figure out how to meet the investor rules with less processing. And investors do seem to change their rules rather often. But underwriters at the same lender are generally held to a pretty standard set of verification rules.

Whoa! Back in the day the ratios were like 28% and 36%. Now you're saying the front-end ratio is 42%?? Or is that the total DTI?

42% for the total DTI for a 'qualified' mortgage, which is a mortgage that can be sold to Fannie/Freddie.

Yeah, the first time, before I knew the magic words, I argued that this was silly, since I could start the necessary withdrawals now and stop them after the loan closed. They said, "Yes, I agree it is silly and you can certainly do that....but this is the requirement." And it had to be a pre-directed automatic fixed withdrawal, not a manual draw of an arbitrary amount. Silly, but there it was.

Yes. I've been told by a loan officer that "after you close on the loan, there aren't any 'IRA police' to verify that you are continuing to take the money out." But it allows the lender to show that you should have enough income to make the mortgage payments. Presumably, you will continue to take enough out of your retirement accounts to actually make the mortgage payments, since you have enough to do so.

Bureaucrats. Reality consists of only what is on the form. And if the right data is in the right line of the form they don't care if it is ephemeral.

They will care if you stop making the mortgage payments. In the case of loans with recourse, they may go after the assets that you documented on the application if the foreclosure doesn't yield enough to make the investor whole. In the case of non-recourse loans, they won't be able to go after those assets, but the lender will need to prove to the investor that you *should* have had enough money to make the payments. Otherwise, the investor may force the lender who sold them the loan to take some/all of the loss.

AJ
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I was told not even one day later on our asset based mortgage. It was with Amerisave and they sell their loans almost instantly, so perhaps it's just being conservative on their part, perhaps he didn't know what he was talking about, though its the 4th loan we do with him and he's always been spot on.

It's the IRS that set the 90 day rule for what can be an 'acquisition' mortgage. From IRS Pub 936 https://www.irs.gov/pub/irs-pdf/p936.pdf

Mortgage treated as used to buy, build, or substantially improve home. A mortgage secured by a qualified home may be treated as home acquisition debt, even if you don't actually use the proceeds to buy, build, or substantially improve the home. This applies in the following situations.

1. You buy your home within 90 days before or after the date you take out the mortgage. The home acquisition debt is limited to the home's cost, plus the cost of any substantial improvements within the limit described below in (2) or (3). (See Example 1, later.)


Lenders are always free to be more strict than the IRS requires them to be.

AJ
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What the underwriter wanted to see was confirmation that the broker was directed to distribute $X/mo to me, *and* to see a copy of the check or my checking account statement showing the deposit(s).
...
Yes, they still want to see that the broker/account administrator is sending you the money, and see that amount deposited into a checking account. It would depend on the lender if they would qualify you by just seeing an uncashed check - some lenders like to see at least 2 deposits into your account, so just showing one uncashed check wouldn't work.


We did not have to draw down anything. Our retirement assets remain untapped. No charades in the asset based mortgage that we got. For a previous effort to buy a property it was suggested that we do the two months draw down of retirement assets as you suggest. This was a different type of mortgage. We also had to put a minimum of 30% down, not a penny less.

If the income documented on your tax returns hadn't been enough to qualify you for the mortgage, then you may well have needed to set up an additional withdrawal from your retirement accounts.

Documented income was no where close to qualifying us for the loan, but no withdrawals from retirement accounts needed. Just large balances.

Probably another type of mortgage out there that's not quite what you are talking about.

IP
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We did not have to draw down anything. Our retirement assets remain untapped. No charades in the asset based mortgage that we got. For a previous effort to buy a property it was suggested that we do the two months draw down of retirement assets as you suggest. This was a different type of mortgage.

Yes, you apparently got an asset based mortgage. If you are not drawing down on your assets, you can get an asset based mortgage based on income that those assets *could* generate.

However, if you are drawing down on your assets, then you can't use those assets for an asset based mortgage - you will need to document the income you are actually drawing from them. If you are drawing from part of your assets (for instance, one spouse's IRA), then you can use the income you are drawing from those assets, and get a partially asset based mortgage based on the income that the rest of the assets (which you aren't drawing from) *could* generate.

Please note: An asset based mortgage assumes that the assets could generate about 2.33% of the assets per year in income: 0.7/360 * 12 = 0.02333 So, if you are planning on using a 4% rule, you're going to be pulling more than that from the assets.

We also had to put a minimum of 30% down, not a penny less.

Yes - asset based mortgages are generally more expensive than income based mortgages, either in rate, in down payment requirement, or sometimes in both. Since investment properties were also mentioned - Mortgages for investment properties are also generally more expensive than mortgages for your principal residence, again in rate, in down payment requirement, or both. And, you generally can't get asset based mortgages for investment properties. DrTarr's company apparently does asset based lending for investment properties, but lenders who sell all of their mortgages to Fannie Mae and/or Freddie Mac don't, since Fannie and Freddie don't allow using asset based mortgages for investment properties.

Documented income was no where close to qualifying us for the loan, but no withdrawals from retirement accounts needed. Just large balances.

Right - because you got an asset based mortgage. You only need to document income if you are getting an income based mortgage.

Probably another type of mortgage out there that's not quite what you are talking about.

Actually asset based mortgages (aka asset depletion mortgages) were extensively discussed in this thread, but the discussion switched back and forth several times based on questions and comments by other posters.

AJ
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This is the 6th time we've refinanced this house, in addition to the original purchase mortgage.

You've posted over the years the times you refinanced. Just curious why you refinanced this time. I would have thought by now that you reached the point you can't get a lower interest rate.

PSU
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I recall you are a serial refinancer. Was your most recent finance sometime this year, so that they already had your most recent tax returns on file?

No. My last refi was several years ago. It was only just recently that I could get a new interest rate low enough to meet my threshold criteria. Triggered by this post https://boards.fool.com/mortgage-34264158.aspx by inparadise


If not, are you sure you got a loan that was backed by Fannie Mae or Freddie Mac? Because Fannie/Freddie loans require solid verification of income, which generally means tax returns.

It was Amerisave. And in fact my previous loan was thru AIMloan. I'm pretty sure it was a FNMA loan, because it's already been sold to Flagstar. Perhaps the solid income verification was satisfied by just the 1099 forms. Of course they still have the form that authorizes the IRS to give them my tax return. But I understand that they only use that for legal reasons if the loan goes bad and they suspect fraud.


Lenders are always trying to figure out how to meet the investor rules with less processing. And investors do seem to change their rules rather often. But underwriters at the same lender are generally held to a pretty standard set of verification rules.

When I was looking via google, I came across references to "Desktop Underwriter". "...an automated program used by loan originators to qualify a borrower through Fannie Mae guidelines for a conventional loan." Evidently the DTI guidelines are looser for a DU loan than a "manual underwrites" loan.
All this is pretty opaque to me.


Presumably, you will continue to take enough out of your retirement accounts to actually make the mortgage payments,

Presumably, you will continue to make the payments. Where the money comes from is none of their concern. They just want to be able to document that you have enough income.
When I complained about this and said that I could simply discontinue the IRA withdrawals after the loan closed, she said that yes, and somebody who had paycheck income could lose their job the day after the loan closed. But they know that they cannot predict or force the future, they can only go by what conditions exist today.

My payment went down, and you'd think that they would see that as presumptive evidence of low risk, but evidently they don't much care about that. Just that the other ratios meet their guidelines.


Funny thing:
They pulled my credit report 3 times in the first few days. Once for the pre-approval and then a couple of days later and then the day after that. (One of my creditcard is linked to "creditwise" so I get an email every time it gets pulled.)
Then a few days later, they (the loan officer) wanted me to give them an explanation letter for why I got so many credit report inquiries. Me: "??? Those were *your* inquiries!"
Here's the bureaucrat part: "Yes, I know, but we still need an explanation letter from you."
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You've posted over the years the times you refinanced. Just curious why you refinanced this time. I would have thought by now that you reached the point you can't get a lower interest rate.

The rate wasn't quite low enough to hit my normal threshold, but it was close. This time, unlike every other time and unlike my standard recommendation, I actually paid points (small though) and the fees. (FWIW, my standard for a refi is large enough lender rebate to cover all the costs & fees.)

BUT....instead of paying them in cash I had them rolled into the loan. Normally a bad idea financially. But the way to look at it is these costs get paid at the _end_ of the mortgage. Say these costs total $8,000. In 30 years, after 30 years of inflation this is only about $4,000 purchasing power.
And that's assuming that you are still alive at the end of the mortgage 30 years from now. Which if you are retired is probably a bad assumption. So those rolled-in costs will be paid by your heirs when they sell the place.
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Then a few days later, they (the loan officer) wanted me to give them an explanation letter for why I got so many credit report inquiries. Me: "??? Those were *your* inquiries!"

Those letters are the height of stupidity. They prove absolutely nothing and yet are in such demand. No doubt just proof that they asked the question.

IP
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Triggered by this post https://boards.fool.com/mortgage-34264158.aspx by inparadise

Also known as the beginning of this thread.

IP
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Those letters are the height of stupidity. They prove absolutely nothing and yet are in such demand. No doubt just proof that they asked the question.

I used to think so, that they were stupid. But then I thought some of the questions on the ATF 4473 form were stupid, too. "Are you buying this gun for somebody else?" "Are you a fugitive from justice?" "Are you a felon?" "Are you in the US legally?"

Then I realized---they are not asking these dumb questions to get the answer. They are asking them so that they can also charge you with perjury if you ever get charged with a violation. That's how Martha Steward spend a few months in Federal Prison---not for the securities violation (they couldn't have gotten her on that), but for lying on a SEC questionnaire.

Look at all those loan papers you sign. One of them warns you that lying on any of the forms is a Federal offense for perjury. If the loan goes into foreclosure, they will go over those forms with a fine-tooth comb to see where you lied.
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Those letters are the height of stupidity.

IP,

Yes, yes they are! - And so, 2 years ago when buying the current hacienda and asked to provide a child/dependent care explanation letter, with my youngest child @ 24, I had no choice but to explain that my 12 year old blue heeler (Coca) was very well potty trained, thus requiring no additional day care expenses. They accepted the letter and I got a mortgage. He is 14 now and I have not spent anything - so seems like there is no perjury problem either :)

d(Coca)/dTarr
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About 7 years ago, I found an ARM structured as a 10/1, with the first years interest-only at 2.85%, then floating with a cap of 4.85%. (I think I paid $1500 to lower the mortgage maybe a quarter point or so, but I forget the details.) Altogether, we slashed our payments by over half.

My thinking was:

1) The savings we put into retirement accounts.
2) By year 7 (now), we'd both be 65 and thinking about whether or not we'd be moving.
3) If interest rates dropped, so would our payment.
4) If interest rates grew, we'd look at what our current mortgage offered & refi if needed or just pay off the loan through our savings. (The savings from the loan wouldn't itself be enough, but it'd be close enough for us to pull cash and pay the loan off.)

Notes:
- We have a ton of equity in the home.
- The values of the homes in my area is exploding.
- We have very good retirement savings; the loan just gave us another way to save.
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About 7 years ago, I found an ARM structured as a 10/1, with the first years interest-only at 2.85%, then floating with a cap of 4.85%.

These days, you probably won't find an I/O ARM with a 10 year initial rate lock. You might find one where you can pay I/O for the first 10 years, but the rate will probably only be fixed for the first 5 years. And even if you do find one, the rates are likely to be, at most, 1/2 point lower than the 30 year fixed, which means that the lifetime caps are probably 4.5% higher than the 30 year rate. And because of the I/O feature, they may even be as much as the 30 year rate. Not worth the risk unless you are absolutely sure you are going to be out of the property in a few years.

Altogether, we slashed our payments by over half.

Half compared to a 30 year fixed rate at that time, or half compared to your prior mortgage? If you're comparing to the prior mortgage, how much would you have been able to save if you had just refinanced into a 30 year fixed rate instead?

3) If interest rates dropped, so would our payment.

For mortgage interest rates to drop from where they were 7 years ago, we would have to have negative Treasury rates. It can happen, but I'm not sure that it's working out that well in Europe right now, since their GDP growth rates have been decreasing https://tradingeconomics.com/european-union/gdp-growth

4) If interest rates grew, we'd look at what our current mortgage offered & refi if needed or just pay off the loan through our savings. (The savings from the loan wouldn't itself be enough, but it'd be close enough for us to pull cash and pay the loan off.)

With a lifetime cap of just 2% (4.85% - 2.85%), that's a pretty small risk to take. Lifetime caps on ARM offerings are usually 5%, with 2% annual caps. That's quite a bit more risk to take.

AJ
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