Mortgage Rates in ER

[LongBeachLion]

Although I am still working, I plan on stopping at some point soon and re-locating.  Currently in the Los Angeles area, my wife and I are thousands of miles away from the majority of family and friends.  Southern California is also very expensive.  With that said, I am at the point where my assets have surpassed seven figures and continue to grow.  We would have to make a few adjustments to FIRE in LA, but could easily move back east and live on much less and be happier.

When we move back, I will have resigned from work.  With interest rates so low, I would still prefer to get a mortgage.  Although my assets are high and credit score is over 800, will I have a problem getting the absolute best mortgage rates?  If so, would increasing my down payment, from say 20% to 50% help?

For better or for worse, I have rented most of my life so I'm not familiar with lending practices or regulation.

[Another Reader]

You may be unable to get a mortgage.  Lenders traditionally do not consider asset based income as a strong source of repayment.  They want to see job income, pension income, Social Security income, etc.  The rules recently imposed on lenders for calculating "ability to pay" are also focused on these sources of income.

Rental income generally requires two years of appearing on your tax returns to be counted.  Some lenders will count a portion of the rental income and subtract the mortgage payments.  Some lenders don't consider it at all.  I had an underwriter once count depreciation as a real expense.  Paper asset income is the lowest quality, least secure source of income. 

I would check with some lenders in the area where you want to buy to see how they view your proposed income and income sources.  You may want to buy the property as a second home or as a rental, depending on how you can qualify for the mortgage, before you quit your job and move.

[sandandsun]

"You may want to buy the property as a second home or as a rental, depending on how you can qualify for the mortgage, before you quit your job and move."

+1 - hands down I think this would be the simplest thing to do...

[LongBeachLion]

You may be unable to get a mortgage.  Lenders traditionally do not consider asset based income as a strong source of repayment.  They want to see job income, pension income, Social Security income, etc.  The rules recently imposed on lenders for calculating "ability to pay" are also focused on these sources of income.

Rental income generally requires two years of appearing on your tax returns to be counted.  Some lenders will count a portion of the rental income and subtract the mortgage payments.  Some lenders don't consider it at all.  I had an underwriter once count depreciation as a real expense.  Paper asset income is the lowest quality, least secure source of income. 

I would check with some lenders in the area where you want to buy to see how they view your proposed income and income sources.  You may want to buy the property as a second home or as a rental, depending on how you can qualify for the mortgage, before you quit your job and move.

Appreciate the information.  Although it may be inconvenient to do so, I may start to shop early.  I could always pay cash, but I haven't really crunched the numbers yet. 

[Aphalite]

Like everyone's said above, the best way to go would be to apply for the mortgage while you still have the job, then quit shortly after the loan closes - taking a chunk out of your investment portfolio means giving up market returns to lock in a 4-5% IRR in your home. If it doesn't push your FI away, then that's a good enough choice, but I would expect that long term with dividends reinvested, keeping that money working for you outpaces 4-5%.

[Eric]

As a lifelong renter who may purchase his first home in retirement, I had a similar question a while back.  I can't remember the thread, but the conclusion was that yes, it would probably be harder to get a mortgage, but it's still doable.  Another poster chimed in that worked for a smaller bank that said that his bank would do these types of loans.  We didn't get into the difference in rates, because I was more focused on the possibility, but shouldn't it be your credit score that has the most bearing on whether you're getting the best rate or not?

[tomsang]

As a lifelong renter who may purchase his first home in retirement, I had a similar question a while back.  I can't remember the thread, but the conclusion was that yes, it would probably be harder to get a mortgage, but it's still doable.  Another poster chimed in that worked for a smaller bank that said that his bank would do these types of loans.  We didn't get into the difference in rates, because I was more focused on the possibility, but shouldn't it be your credit score that has the most bearing on whether you're getting the best rate or not?

If they are non conforming you will end up paying a higher interest rate. It might make sense to see what this premium is before retiring.

[LongBeachLion]

Like everyone's said above, the best way to go would be to apply for the mortgage while you still have the job, then quit shortly after the loan closes - taking a chunk out of your investment portfolio means giving up market returns to lock in a 4-5% IRR in your home. If it doesn't push your FI away, then that's a good enough choice, but I would expect that long term with dividends reinvested, keeping that money working for you outpaces 4-5%.

This was my initial thought as well and probably requires further analysis.  I was shooting for a total home payment for under $1,500 in retirement. 

Using round numbers, on a $250,000 Mortgage, with taxes and insurance included, 30 Years at 4% Interest, over $800/month would initially go to interest.  This would accomplish the $1,500/month total payment, but there is some level of waste paying interest.  On the flip side, keeping the money invested feels more secure and, over the long haul, will certainly have higher investment returns and dividends. 

I suppose renting could be an option, but single family home options are limited in the area I'm looking.

[Aphalite]

Like everyone's said above, the best way to go would be to apply for the mortgage while you still have the job, then quit shortly after the loan closes - taking a chunk out of your investment portfolio means giving up market returns to lock in a 4-5% IRR in your home. If it doesn't push your FI away, then that's a good enough choice, but I would expect that long term with dividends reinvested, keeping that money working for you outpaces 4-5%.

This was my initial thought as well and probably requires further analysis.  I was shooting for a total home payment for under $1,500 in retirement. 

Using round numbers, on a $250,000 Mortgage, with taxes and insurance included, 30 Years at 4% Interest, over $800/month would initially go to interest.  This would accomplish the $1,500/month total payment, but there is some level of waste paying interest.  On the flip side, keeping the money invested feels more secure and, over the long haul, will certainly have higher investment returns and dividends. 

I suppose renting could be an option, but single family home options are limited in the area I'm looking.

Don't forget to take the deduction into consideration as well, 800/month is about 10k annualized, which gives you more leeway as far as deductions are concerned. Additionally, your house (theoretically) keeps up with inflation regardless of whether you have a mortgage or not, but having a mortgage protects you from inflation far more effectively than just owning a home (as individual housing markets could crash)

For example:
Would you rather have $750,000 growing at market rate and a $250,000 house growing at inflation rate (3-4%)
or
$950,000 growing at market rate, $50,000 in equity growing at inflation rate, and $200,000 in debt that's fixed at 4%?

[mozar]

If you do get a mortgage, a month after you close you have to sign a letter saying nothing has changed. Quit after you sign the letter.

[TomTX]

If you do get a mortgage, a month after you close you have to sign a letter saying nothing has changed. Quit after you sign the letter.

I don't think I ever had to do this

Me either. I've had 3 new mortgages, a HELOC and a full refi with a variety of different lenders.

[Gin1984]

If you do get a mortgage, a month after you close you have to sign a letter saying nothing has changed. Quit after you sign the letter.

I don't think I ever had to do this

Me either. I've had 3 new mortgages, a HELOC and a full refi with a variety of different lenders.

Me either.

[dragoncar]

As a lifelong renter who may purchase his first home in retirement, I had a similar question a while back.  I can't remember the thread, but the conclusion was that yes, it would probably be harder to get a mortgage, but it's still doable.  Another poster chimed in that worked for a smaller bank that said that his bank would do these types of loans.  We didn't get into the difference in rates, because I was more focused on the possibility, but shouldn't it be your credit score that has the most bearing on whether you're getting the best rate or not?

If they are non conforming you will end up paying a higher interest rate. It might make sense to see what this premium is before retiring.

I believe there's currently a non-conforming discount

[tomsang]

As a lifelong renter who may purchase his first home in retirement, I had a similar question a while back.  I can't remember the thread, but the conclusion was that yes, it would probably be harder to get a mortgage, but it's still doable.  Another poster chimed in that worked for a smaller bank that said that his bank would do these types of loans.  We didn't get into the difference in rates, because I was more focused on the possibility, but shouldn't it be your credit score that has the most bearing on whether you're getting the best rate or not?

If they are non conforming you will end up paying a higher interest rate. It might make sense to see what this premium is before retiring.

I believe there's currently a non-conforming discount

That doesn't make sense. By definition a loan that is not conforming to standard is riskier. Something must be off.

[dragoncar]

As a lifelong renter who may purchase his first home in retirement, I had a similar question a while back.  I can't remember the thread, but the conclusion was that yes, it would probably be harder to get a mortgage, but it's still doable.  Another poster chimed in that worked for a smaller bank that said that his bank would do these types of loans.  We didn't get into the difference in rates, because I was more focused on the possibility, but shouldn't it be your credit score that has the most bearing on whether you're getting the best rate or not?

If they are non conforming you will end up paying a higher interest rate. It might make sense to see what this premium is before retiring.

I believe there's currently a non-conforming discount

That doesn't make sense. By definition a loan that is not conforming to standard is riskier. Something must be off.

Here's an explanation: http://money.cnn.com/2013/11/12/real_estate/jumbo-mortgages/

(maybe a better one here: http://thebasispoint.com/2013/06/13/jumbo-rates-lower-than-conforming-rates/)

[Dicey]

If you do get a mortgage, a month after you close you have to sign a letter saying nothing has changed. Quit after you sign the letter.

Never heard of this either. I've done lots of mortgages and re-fi's including stated income a.k.a. liar's loans. If I got such a letter, I'd say yeah, nothing has changed unless you want to give me a better rate or reduce my principal balance. Unless you commit outright fraud, I doubt this is enforceable in any way. You're thinking about moving, which is why you're buying a second home there so you can see if you like it. End of story.

We did have another odd one pop up on our last home purchase...

It was a short sale. The day before closing the selling lender included a document that the buyer (us) could not change the title (i.e. add anyone, take anyone off title, re-fi, etc.) for one year after the closing date. Who the fuck are they to tell us what we can do with our asset once they have been paid an agreed upon amount? Yeah, I get that we bought it on a short sale and they were trying to discourage flipping, but I seriously doubt that this was a legally enforceable way to do it. We signed because it had been a stupidly long escrow and we just wanted the damn thing to close. Now that it's been a year, I guess we are free to do whatever we want. I believe I'm also free to say the lender was "Ocwen" and I can't begin to tell you what a horrible experience it was dealing with them.

[Poorman]

If you do get a mortgage, a month after you close you have to sign a letter saying nothing has changed. Quit after you sign the letter.

Never heard of this either. I've done lots of mortgages and re-fi's including stated income a.k.a. liar's loans. If I got such a letter, I'd say yeah, nothing has changed unless you want to give me a better rate or reduce my principal balance. Unless you commit outright fraud, I doubt this is enforceable in any way. You're thinking about moving, which is why you're buying a second home there so you can see if you like it. End of story.

We did have another odd one pop up on our last home purchase...

It was a short sale. The day before closing the selling lender included a document that the buyer (us) could not change the title (i.e. add anyone, take anyone off title, re-fi, etc.) for one year after the closing date. Who the fuck are they to tell us what we can do with our asset once they have been paid an agreed upon amount? Yeah, I get that we bought it on a short sale and they were trying to discourage flipping, but I seriously doubt that this was a legally enforceable way to do it. We signed because it had been a stupidly long escrow and we just wanted the damn thing to close. Now that it's been a year, I guess we are free to do whatever we want. I believe I'm also free to say the lender was "Ocwen" and I can't begin to tell you what a horrible experience it was dealing with them.

I believe the reason for that isn't to discourage legal flipping, but to prevent short sale fraud.  A lot of scams popped up around short sales with the sellers or realtors using straw buyers to acquire the property at a discount and then flipping it back to them so they could profit from the discount.  Preventing a title change for 12 months would make those types of fraudulent deals more difficult.

[Another Reader]

I have had those letters in the closing docs, but never a month after closing. 

Ocwen is a horrible servicing company.  The servicing of a number of my investment property loans that were private investor owned (not Fannie/Freddie) was given to Ocwen several years ago.  Their original website was fairly easy to use and luckily I never had to call them.  Everything was on automatic payment and it was easy to follow the withdrawals and crediting to the accounts.  Last year, they moved most but not all of the loans into the "new" Ocwen entity.  The move included the most user-unfriendly website I have ever seen.  It seems to be designed for people that are in financial trouble.  It takes about 5 pages now to get to a pdf "Payment Letter" that shows how your payment was applied and when it was received.  They screwed up the first payments for everyone with automatic withdrawal.  I was on the phone several times in the 10 or 12 days it took for them to fix the programming and make the withdrawals.  I could never get a straight answer about the problem or how they intended to fix it.  I was considering sending duplicate payments by Federal Express to avoid being late when the problem was finally fixed.

Recently they solicited me to switch from a low fixed rate loan under HARP to a 5/1 ARM "to lower my payments."  One of the first lines in the fine print was "if you refinance under this program, you may pay more in interest than you would with your existing loan."  Yep, another servicer with a subprime subsidiary out to make a buck off their captive customer base.

[Dicey]

Okay, Another Reader, since you picked up on my comment, I'll add a little bit more...There are not enough words to describe how hateful they were to deal with.
Customer service is  a completely foreign concept to them...They exist to separate you from your money...Nasty in every way possible. Look, I just start thinking about them and my thoughts fly apart...If I ever have a loan that is sold to them, I will immediately refinance with someone else or just pay off the loan (Sorry, Cheddar Stacker). Miserable experience.

[Dicey]

I believe the reason for that isn't to discourage legal flipping, but to prevent short sale fraud.  A lot of scams popped up around short sales with the sellers or realtors using straw buyers to acquire the property at a discount and then flipping it back to them so they could profit from the discount.  Preventing a title change for 12 months would make those types of fraudulent deals more difficult.

I see that, but we had to outbid twelve other people to get this house and they knew that. Also, there are many legitimate reasons for title change. How would Ocwen possibly know the difference? What are they going to do sue me because I set up a trust, for example?

[Hamster]

It was a short sale. The day before closing the selling lender included a document that the buyer (us) could not change the title (i.e. add anyone, take anyone off title, re-fi, etc.) for one year after the closing date. Who the fuck are they to tell us what we can do with our asset once they have been paid an agreed upon amount?

Not to defend some of the weirdness in this case, but...

The asset (house) is used to secure the mortgage. That is part of the reason a mortgage is so damn cheap in terms of low interest rates, compared to other loans. As long as they hold the mortgage they probably have the right to tell you that you have to be on title, as outlined in your mortgage agreement (due on transfer clause). They can also tell you that you have to keep it insured.

Is something like this paragraph in your mortgage agreement?

17. Transfer of the Property or a Beneficial Interest in Borrower. If all or any part of the Property or any interest in it is sold or transferred (or if a beneficial interest in Borrower is sold or transferred and Borrower is not a natural person) without Lender's prior written consent, Lender may, at its option, require immediate payment in full of all sums secured by this Security Instrument. However, this option shall not be exercised by Lender if exercise is prohibited by federal law as of the date of this Security Instrument.

This is not be enforceable in certain cases - transfer to ex-spouse in divorce, living trust, etc.

[dragoncar]

It was a short sale. The day before closing the selling lender included a document that the buyer (us) could not change the title (i.e. add anyone, take anyone off title, re-fi, etc.) for one year after the closing date. Who the fuck are they to tell us what we can do with our asset once they have been paid an agreed upon amount?

Not to defend some of the weirdness in this case, but...

The asset (house) is used to secure the mortgage. That is part of the reason a mortgage is so damn cheap in terms of low interest rates, compared to other loans. As long as they hold the mortgage they probably have the right to tell you that you have to be on title, as outlined in your mortgage agreement (due on transfer clause). They can also tell you that you have to keep it insured.

Is something like this paragraph in your mortgage agreement?

17. Transfer of the Property or a Beneficial Interest in Borrower. If all or any part of the Property or any interest in it is sold or transferred (or if a beneficial interest in Borrower is sold or transferred and Borrower is not a natural person) without Lender's prior written consent, Lender may, at its option, require immediate payment in full of all sums secured by this Security Instrument. However, this option shall not be exercised by Lender if exercise is prohibited by federal law as of the date of this Security Instrument.

This is not be enforceable in certain cases - transfer to ex-spouse in divorce, living trust, etc.

This is not the current lender w/ a security interest, but the lender approving the short sale.  Unless this is in the purchase contract, I can't see why you can't just ignore such a letter.  But I don't have enough details to say.

[Dicey]

It was a short sale. The day before closing the selling lender included a document that the buyer (us) could not change the title (i.e. add anyone, take anyone off title, re-fi, etc.) for one year after the closing date. Who the fuck are they to tell us what we can do with our asset once they have been paid an agreed upon amount?

Not to defend some of the weirdness in this case, but...

The asset (house) is used to secure the mortgage. That is part of the reason a mortgage is so damn cheap in terms of low interest rates, compared to other loans. As long as they hold the mortgage they probably have the right to tell you that you have to be on title, as outlined in your mortgage agreement (due on transfer clause). They can also tell you that you have to keep it insured.

Is something like this paragraph in your mortgage agreement?

17. Transfer of the Property or a Beneficial Interest in Borrower. If all or any part of the Property or any interest in it is sold or transferred (or if a beneficial interest in Borrower is sold or transferred and Borrower is not a natural person) without Lender's prior written consent, Lender may, at its option, require immediate payment in full of all sums secured by this Security Instrument. However, this option shall not be exercised by Lender if exercise is prohibited by federal law as of the date of this Security Instrument.

This is not be enforceable in certain cases - transfer to ex-spouse in divorce, living trust, etc.

Dragoncar nailed it in her comment below yours, Hamster. Ocwen was the seller's lender on their first (Yes, they had a second. Of course they had a second.). The rest of the story is that we don't have a mortgage on the property, so that's not the issue.  (Sorry Cheddar Stacker, but no fear, we still have one on another property, and we're still considering one here, now that our purchase has "seasoned" - more lender BS.)

In the meantime, the mortgage lender on our side just kept asking for such ridiculous bullshit that we finally just said "Fuck it" and wrote a check. Since I'm FIRE and DH is still working, when we applied for the mortgage, we were advised to apply for the mortgage in DH's name only (still more lender BS). The papers were already drawn up when we decided to pay cash, so we figured we'd just do a quit claim at closing, which is why this letter from Ocwen at the last minute was so shocking. Fortunately, CA is a community property state, but the unnecessary exposure to risk was crazymaking and totally unnecessary. Yes, we probably could have disputed it at the time, but after eight months in escrow, we just wanted the damn thing to close.

And yeah, it is a really nice house and worth all the bullshit. Being able to bring a cashier's check to closing was pretty awesome. Now, DH and I walk to work together every morning. Three tenths of a mile. Each way. And they even pay him an extra stipend for not driving to work. Sweet.

[Hamster]

...
This is not the current lender w/ a security interest, but the lender approving the short sale.  Unless this is in the purchase contract, I can't see why you can't just ignore such a letter.  But I don't have enough details to say.

Sorry, Reading comprehension fail. I totally missed the part where Diane C said it was the seller's lender, not your lender.

I  purchased one short sale (about 3 years ago). It was a pretty long/painful process, but there was no document like that. The bank was just happy to be rid of it, and didn't care at all what I did with it afterward.

Diane, congrats on what sounds like a great purchase despite a dreadful experience getting there.