Getting a new mortgage when retired.

[doneat54]

So this idea of knocking down our house and building a new one (same waterfront lot) is getting more traction, and we are now fishing for quotes. I'll spare the real estate/reasoning details on that. We have a mortgage of $225k now and it is assumed that if we knock the house down, we will need to pay it off. We don't have any idea of the cost for building new, but it it is pretty certain that it will be beyond our available (tax free) cash by $200k-$400k.

Probably.

So I plan of visiting our bank soon (who has our mortgage now) and inquiring about getting a mortgage. We are now both retired, have a very comfortable portfolio/income stream. Sure we could raid our portfolio for the extra, but it would push us WAY up in the tax brackets; don't like that idea. Having a mortgage the size that we have now would be zero problem with our finances.

We have no pension or annuities. I manage, and pull from, our portfolio periodically through the year, dump it into the local bank savings account and then create regular bi weekly "paycheck" transfers into our household checking.

So my question is has anyone sought a mortgage in similar situations. I would think that the bank would want to see some kind of guaranteed income stream to approve a mortgage. Has anyone done this? I wouldn't rule out getting a modest annuity just to make this work, but if the bank wants to see $10k/mo of guaranteed income to give us a $2k/mo mortgage, I probably won't do that.

 

[Out-to-Lunch]

Here is a useful previous thread: PSA: Tips on getting a mortgage in retirement

We recently got an asset-based mortgage from our credit union. They used a very favorable treatment of our assets. They assumed that you could deplete them over a 7 year period. So they look at all your assets, divide by 7, and assume that amount (plus any pensions/SS/W2 income) is your yearly income. Then apply the usual stipulation that your mortgage (and other debt) payments cannot be more than, IIRC, 35 or 40% of that income.

Dividing by *7* is very liberal. I think some other sources require that you divide by 30 (i.e., the length of the loan).

 

[TheWizard]

Here is a useful previous thread: PSA: Tips on getting a mortgage in retirement

We recently got an asset-based mortgage from our credit union. They used a very favorable treatment of our assets. They assumed that you could deplete them over a 7 year period. So they look at all your assets, divide by 7, and assume that amount (plus any pensions/SS/W2 income) is your yearly income. Then apply the usual stipulation that your mortgage (and other debt) payments cannot be more than, IIRC, 35 or 40% of that income.

Dividing by *7* is very liberal. I think some other sources require that you divide by 30 (i.e., the length of the loan).

7 is totally irresponsible, checko...

 

[MdaPetralia]

So my question is has anyone sought a mortgage in similar situations. I would think that the bank would want to see some kind of guaranteed income stream to approve a mortgage. Has anyone done this?

Tell the mortgage company that you want them to use the "Asset Depletion" method. With this, you basically give them a list/value of all your financial assets (or at least enough to cover the size of the loan you want) and they will use that for qualifying you for a mortgage. I was in similar situation as you with no income and was able to obtain a mortgage that way.

 

[Out-to-Lunch]

7 is totally irresponsible, checko...

Checko :?

I should be clear that we were nowhere near the limit using that divisor. They could have used a much, much larger value for our divisor.

Edited to add: To boot, it was a bridge mortgage. When we sell the current house, we will pay off nearly all of the new mortgage.

 

[Gallaher]

I was able to get a cash flow mortgage 5 years ago, from our credit union. Just needed 2 years of 401K withdrawals.
Was very easy.

 

[pb4uski]

So this idea of knocking down our house and building a new one (same waterfront lot) is getting more traction, and we are now fishing for quotes. I'll spare the real estate/reasoning details on that. We have a mortgage of $225k now and it is assumed that if we knock the house down, we will need to pay it off. We don't have any idea of the cost for building new, but it it is pretty certain that it will be beyond our available (tax free) cash by $200k-$400k.

Probably.

So I plan of visiting our bank soon (who has our mortgage now) and inquiring about getting a mortgage. We are now both retired, have a very comfortable portfolio/income stream. Sure we could raid our portfolio for the extra, but it would push us WAY up in the tax brackets; don't like that idea. Having a mortgage the size that we have now would be zero problem with our finances.

We have no pension or annuities. I manage, and pull from, our portfolio periodically through the year, dump it into the local bank savings account and then create regular bi weekly "paycheck" transfers into our household checking.

So my question is has anyone sought a mortgage in similar situations. I would think that the bank would want to see some kind of guaranteed income stream to approve a mortgage. Has anyone done this? I wouldn't rule out getting a modest annuity just to make this work, but if the bank wants to see $10k/mo of guaranteed income to give us a $2k/mo mortgage, I probably won't do that.

We demolished our lakefront seasonal "camp" in Oct 2011 and rebuilt a year-round home and moved in May 2012.

It wasn't until after all was said and done that it dawned on me that perhaps I should have let our mortgage lender know that we had demolished part of their collateral.

They had no way of knowing.

We bought a new house in March and are currently selling our Florida condo (which has no mortgage). For the new house, rather than sell my brokrage account investments, I took out a Pledged Asses Line of Credit to pay for the new house and then will pay that off when the Florida condo sells. The interest rate is 8.72%, but I am earning over 5% on the collateral so my net cost is only about 3.75% so if you have a good sized brokerage account then you might consider that as temporary substitute collateral for the lender.

If it was me, I would not tell then lender and plead ignorance if you get caught. If the mortgage balance is less than the land value, I wouldn't sweat it.

 

[doneat54]

Thanks all. That is encouraging. I will tell the bank that the house (may be) torn down (if we do this). The local bank has our existing mortgage anyway. It is a very low rate, but a 7 year ARM that we are into maybe 3 years now. I'll post back here after I talk with them.

 

[Koolau]

Our last mortgage (right after the 2008/2009 debacle) was accomplished by showing our last 3 1040s which showed us paying taxes on our 401(k) withdrawals for (wait for it) creating back door Roths! They counted anything we paid taxes on as "income." You can't make this stuff up! YMMV

 

[Badger]

There is always a lot of home construction in my area where older houses are knocked down and replaced with new larger homes. One thing that I frequently see is many of these old homes are left with one exterior wall still standing. I was told that it would mean the construction is a remodel and not a new construction. I image there is some kind financial benefit. Maybe property taxes are calculated differently

 

[jazz4cash]

They have really cracked down on knocking down older habitable homes around here. Many older homes on large lots where the value of the building is much less than the land. Building a Mcmansion in the middle of a block of modest homes from the 40’s-60’s isn’t good for anyone. They can get around that by leaving one wall standing. It’s a loophole that can be used to bypass the intention of the building code.

There is always a lot of home construction in my area where older houses are knocked down and replaced with new larger homes. One thing that I frequently see is many of these old homes are left with one exterior wall still standing. I was told that it would mean the construction is a remodel and not a new construction. I image there is some kind financial benefit. Maybe property taxes are calculated differently

 

[Aerides]

There is always a lot of home construction in my area where older houses are knocked down and replaced with new larger homes. One thing that I frequently see is many of these old homes are left with one exterior wall still standing. I was told that it would mean the construction is a remodel and not a new construction. I image there is some kind financial benefit. Maybe property taxes are calculated differently

Depends on the city/state, etc., but in Florida you need one load-bearing wall to stay so that your property is not assessed as new value. IE, if you take a $400k house and tear it down and build a brand new house, assessed at $1m, you'd pay property taxes on a 1M house.
Leave one wall? You still have a $400k house and it can only go up each year with the normal caps, which I think in Florida is 3% a year.

 

[MarieIG]

Depends on the city/state, etc., but in Florida you need one load-bearing wall to stay so that your property is not assessed as new value. IE, if you take a $400k house and tear it down and build a brand new house, assessed at $1m, you'd pay property taxes on a 1M house.
Leave one wall? You still have a $400k house and it can only go up each year with the normal caps, which I think in Florida is 3% a year.

That's a very valuable wall!

 

[marko]

So my question is has anyone sought a mortgage in similar situations. I would think that the bank would want to see some kind of guaranteed income stream to approve a mortgage. Has anyone done this? I wouldn't rule out getting a modest annuity just to make this work, but if the bank wants to see $10k/mo of guaranteed income to give us a $2k/mo mortgage, I probably won't do that.

The key is to have a regular and consistent withdrawal.

We were about $150K short between the sale of our old house and the new one. We had never had a mortgage before but thought that at 2.5% it was cheap money.

We ran into a snag thinking that an 850 credit score, several million in investments and zero debt would make them drool. Nope! Because we were only withdrawing two or three times a year when the checking account got low, they were not interested. What they want to see is a monthly/quarterly set of withdrawals. It's about checking a particular box...literally.

With a dozen hoops they wanted us to jump through, we ended up just paying cash.

 

[Koolau]

The key is to have a regular and consistent withdrawal.

We were about $150K short between the sale of our old house and the new one. We had never had a mortgage before but thought that at 2.5% it was cheap money.

We ran into a snag thinking that an 850 credit score, several million in investments and zero debt would make them drool. Nope! Because we were only withdrawing two or three times a year when the checking account got low, they were not interested. What they want to see is a monthly/quarterly set of withdrawals. It's about checking a particular box...literally.

With a dozen hoops they wanted us to jump through, we ended up just paying cash.

In our case, all they cared about was taxable 1040 income (as mentioned, it happened to be from converting tIRAs to Roths and owing/paying taxes for a few years.) THAT was all they needed to say - "Hey, they have income. We'll give them the loan."

What a screwed up system.

 

[Willers]

There is always a lot of home construction in my area where older houses are knocked down and replaced with new larger homes. One thing that I frequently see is many of these old homes are left with one exterior wall still standing. I was told that it would mean the construction is a remodel and not a new construction. I image there is some kind financial benefit. Maybe property taxes are calculated differently

This also may have to do with zoning/lot sizes. In my town there is a maximum single family lot size now for new builds. If the lot is too large ad the building is completely razed then the lot must be subdivided so a single home cannot use the entire lot. This just happened to a friend of mine who didn't know that before he demoed the existing home. Leaving even just the foundation qualifies as a remodel so the subdivision requirement isn't triggered.

 

[doneat54]

This also may have to do with zoning/lot sizes. In my town there is a maximum single family lot size now for new builds. If the lot is too large ad the building is completely razed then the lot must be subdivided so a single home cannot use the entire lot.

Good God, are you kidding me? Talk about forcing high density living. Where is this?

 

[marko]

Good God, are you kidding me? Talk about forcing high density living. Where is this?

Not at all unusual in my area. When they built my gated community 5 years ago there were protests that the land could've been put to better use by building 500 "tiny houses" instead of the 75 that we have.

"Density" is now often viewed as a positive thing depending upon where you live.

 

[Willers]

Good God, are you kidding me? Talk about forcing high density living. Where is this?

Is is a ski town in Colorado. The trick is to leave at least one foundation wall. My friend, unfortunately, got a quick demo permit from the city (he was surprised how quickly he got it) and only realized he had a problem after he had completed the demo. It turned out that the city had been targeting that lot for division for a long time so they were thrilled when he asked for a demo permit.

Density is the seen by many as the cure to the housing issues in Colorado. To some extent this is true, but it is a very complicated issue. I won't go further so Porky doesn't close a useful thread.

 

[Teacher Terry]

Willers, so what is your friend going to do? Personally I think that’s horrible what the town is doing.

 

[Aerides]

Well it helps avoid another problem when someone over builds for the lot and sticks a mcmansion right up against the easements. Anyone looking to change a footprint needs to do a little homework first or at least their licensed architect/builder should know the rules.

 

[Willers]

Willers, so what is your friend going to do? Personally I think that’s horrible what the town is doing.

He is trying to get a variance, but I am pessimistic about the likelihood of success. If that fails, they'll have to subdivide and either build on 1/2 (sell or keep the other lot) or sell off the 2 lots and find something else.