Author Topic: Getting a mortgage after FIRE.  (Read 8188 times)

Miss Prim

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Getting a mortgage after FIRE.
« on: November 21, 2015, 07:41:46 AM »
I am newly retired (April of this year).  We have a family cottage on a lake that is getting too small for our extended family.  We are planning on adding on to it in the spring and I have an architect drawing up plans right now.  My single sister-in-law owns half of it and has agreed to pay half of the cost which I wasn't expecting, but she is very close to my children and it will be part of her inheritance to them, as it will be ours. 

My question is will I be able to get a mortgage for our half.  My sister-in-law hates debt of any kind, so I think she may just pay off her half ($75,000 estimate for half).  I would like to finance my part of it.  We own our house free and clear (~400,000), a rental property worth about $60,000 and the cottage itself which we only have $35,000 into and it is worth about $125,000.  We have no debt at all.  Our income right now is $1580 SS. (husbands), $400 pension (husbands), clear $500 from rental house, $600 from basement apt. rental, $1500 husbands small business and a few hundred per month pole barn storage rental.  I have taken out less than 2% of my portfolio of 1.3M to supplement our income because we had some large expenses for maintenance on our house.

 I am on the ACA now for January,  I estimated that we will have $52,000 coming in, so I get a subsidy.  I really don't want to go above that, so that is why the mortgage.  I am going to pull out more money this year to make sure we have enough to make mortgage payments.  I will be on the ACA until Sept 2018, when I turn 65 and will be on medicare.  Husband is already on medicare.  I am delaying SS until at least 65 or 66, and I took a lump sum retirement because the hospital I worked for was managing the retirement plan and there were a lot of years they were underfunded.  It was rolled into and IRA with fidelity.

Should I even get a mortgage?  Should I get an equity line of credit on my house or rental?  Can I qualify for a mortgage on a 2nd home based on our income, most of it not earned income?  These are the questions I have that I'm hoping someone will help me with.

Thanks,  Miss Prim

Miss Prim

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Re: Getting a mortgage after FIRE.
« Reply #1 on: November 22, 2015, 02:42:01 PM »
Anyone have any ideas?  Maybe I should post this under landlording, but I am FIRED so I thought I would try it here first.

                                                           Miss Prim

arebelspy

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Re: Getting a mortgage after FIRE.
« Reply #2 on: November 22, 2015, 03:28:40 PM »
The big banks likely won't touch you, since you don't fall into their typical box.

Look for a smaller, local bank who will do their own underwriting.  That's your best bet.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
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GuitarBrian

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Re: Getting a mortgage after FIRE.
« Reply #3 on: November 22, 2015, 04:17:22 PM »
following, as I too am curious what options are available...

Money Badger

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Re: Getting a mortgage after FIRE.
« Reply #4 on: November 22, 2015, 07:04:29 PM »
Miss Prim,  The usual mortgage broker/mortgage mega banker, etc. most likely wont want to touch you.    Unless you get lucky and find a small local bank as others suggested.   Generally, they have to rely on mega banker Underwriters who don't like "unemployed" people no matter the asset level and they will have more problems bundling your loan into a security so they'll avoid you.

Usually though, the banks will be willing to do a HELOC as that's a full-recourse loan and they don't have to appease Underwriting to the same extents as a "non-recourse mortgage".   Full recourse means they can come after your personal assets to pay the loan, not just the property the HELOC is opened against.   Good luck!

Monkey Uncle

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Re: Getting a mortgage after FIRE.
« Reply #5 on: November 23, 2015, 04:32:04 AM »
I guess I'm not understanding why, with a 1.3 MM stash that you don't need for income, you wouldn't just fork over the 75k in cash.  Sure, with a low interest rate, you might come out better in the long run leaving the 75k invested, but the difference is probably not much more than a rounding error in your situation.  Sounds like you are concerned that taking the 75k out at one time will boost your income to the point that you lose your ACA subsidy.  Can you strategically sell under-appreciated securities to minimize the capital gains?

Also, be aware that your sister who hates debt is probably going to have to co-sign the loan since she is half owner of the collateral.

Miss Prim

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Re: Getting a mortgage after FIRE.
« Reply #6 on: November 23, 2015, 06:44:56 AM »
Thank you all for the replies.  I thought it would probably be hard to get a mortgage being retired with not much earned income.  We do have some inheritance stocks and bonds in a non-tax deferred account and I think I can try to do some tax-loss harvesting.  I estimated $52,000 for next year based on pulling out some money.  And thank you Monkey Uncle for pointing out that sister-in-law would have to cosign the loan.  I hadn't thought of that.  I know she wouldn't be keen on that! 

I guess I will skip the mortgage and pull out what I need to pay cash.  We are going to do some of the work ourselves so $150,000 was the worst case scenario.  I think it will come in lower than that.  Now I will have to help SIL do some tax-loss harvesting too as she is also on the ACA. 

Thanks again for helping me to decide what to do.

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rubybeth

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Re: Getting a mortgage after FIRE.
« Reply #7 on: November 23, 2015, 07:30:05 AM »
I wouldn't say it's impossible. Why don't you check with a mortgage broker who can check into this for you? My sister recently got a local portfolio loan on a condo because it didn't meet the federal requirements for a traditional mortgage.

DividendMoney

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Re: Getting a mortgage after FIRE.
« Reply #8 on: November 23, 2015, 07:59:29 AM »
If you don't want to use the cash... you could just use your stash as collateral for the loan.  You should get the best rates possible (Prime) as cash is obviously the best security and you won't need to encumber your properties.

arebelspy

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Re: Getting a mortgage after FIRE.
« Reply #9 on: November 23, 2015, 08:27:48 AM »
I would check with a mortgage broker, and small local banks and credit unions, before you give up on the idea, if it's important to you.  It'll take more work, but you likely can get it done.

The other option is something like a Penfed HELOC or something.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

Spork

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Re: Getting a mortgage after FIRE.
« Reply #10 on: November 23, 2015, 12:01:04 PM »
The big banks likely won't touch you, since you don't fall into their typical box.

Look for a smaller, local bank who will do their own underwriting.  That's your best bet.

^---This.

We bought an oddball property in 2006 that the big guys wouldn't touch.  (The land was worth way more than the house on it.)  I called a local bank and the mortgage was handled by one of the VPs.  I think our interest rate was a point higher than the going rate at the time, but they totally understood what we were trying to do and bent over backwards to write the loan.

Miss Prim

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Re: Getting a mortgage after FIRE.
« Reply #11 on: November 26, 2015, 07:09:10 AM »
Thanks again all of you. I just remembered that I do know a mortgage person in the area that our cottage is located.  She actually did the mortgage for my son on his house.  I will check with her and see if it would be possible to get a loan.

A lot of people at our lake have done major improvements on their houses and some small ones have even been torn down and new huge houses have been built.  Even if it costs us $150,000 for expansion, it will be worth more than that plus the $35,000 it cost us 30 years ago, so for me that makes it worthwhile.  Meanwhile, we will finally each have bedrooms without having to share, sleep in bunk beds, sleep on pull-out couches, etc!  It was fine when we were young and only had 2 kids, but now with extended family, not so much!

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Miss Prim

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Re: Getting a mortgage after FIRE.
« Reply #12 on: January 12, 2016, 06:25:22 AM »
Just an update.  A place actually went up for sale on the street next to us that is 2900 sq. ft lake access, 5 bedroom, could be turned into 6 br and it is listed at $219,000.  We could probably sell our cottage for around $70,000, so all in all, it would be less than renovations.  It was an old hotel at one time and it is kind of funky and needs some more work than has already been done, but the space we would have as an extended family is way more that we would have had with an addition.

Now we need to put in a bid and see about that mortgage!  We would just pay it for awhile with the proceeds from the other house and then we could pull out just what we needed for payments every year.  I am excited!

                                                                                                    Miss Prim

NYCMiniBee133

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Re: Getting a mortgage after FIRE.
« Reply #13 on: January 12, 2016, 09:36:47 AM »
What about taking an equity line out on the house you already own free and clear? It's certainly not the same in terms of risk allocation and risk profile (the property you put up for collateral is different), but investigating what rate you can on a line and perhaps it is still advantageous to do it vs paying in cash.

woopwoop

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Re: Getting a mortgage after FIRE.
« Reply #14 on: January 15, 2016, 10:12:33 PM »
You can also look into a cash-out mortgage for the house that you own; it'll be easier to qualify for that kind of mortgage and you should easily be able to pull $75k from it. It'll also make you more appealing to sellers, cash offers rule.

Miss Prim

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Re: Getting a mortgage after FIRE.
« Reply #15 on: January 28, 2016, 03:14:33 PM »
Just an update.  We went in with a low offer and they countered right smack in the middle.  So we got the place for $205,000.  Currently working with the mortgage gal I mentioned earlier.  She is having a hard time with our amount of money coming in as we look kinda poor on paper!  She wanted me to pay off my car (I know, facepunch me, but it is the first new car we have ever bought!), but it is at zero percent interest, so I said no deal.  We might have to put down 40% to qualify.  In that case, I will switch over to a HELOC and be done with trying to get a mortgage.  I have been trying to deal with all this over the internet as we just got back from 2 weeks in the USVI, courtesy of travel hacking!

Retirement is great!                                                                      Miss Prim

Dicey

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Re: Getting a mortgage after FIRE.
« Reply #16 on: January 28, 2016, 05:45:27 PM »
Hooray! But I'm a little fuzzy on the details. Doesn't your SIL own half of the first house? Does this mean you will own one and a half houses at the lake? Details, please, if you're so inclined.
BTW, paying off the car even if it is an interest-free loan might still be better than putting more down on the house, but only consider it it they guarantee you the mortgage in writing!
I admire your willingness to change course and your sharp-eyed determination once you spotted a better deal. As someone who actually enjoys the rehabbing process very much (along with DH, who can fix anything), I am actually pretty relieved for you. Sounds like you can use the new-place as-is and make any needed changes over a longer period of time. Score!

JLR

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Re: Getting a mortgage after FIRE.
« Reply #17 on: January 28, 2016, 06:42:56 PM »
How exciting! Please keep us updated, especially with renovations once you get in.

Miss Prim

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Re: Getting a mortgage after FIRE.
« Reply #18 on: January 29, 2016, 05:24:55 AM »
Thanks all!  Just to clarify, my SIL owns one half of our cottage we have now.  It has been paid off for years.  Now we are in the process of buying another cottage on the next street over and my SIL will own half of that.  We will then sell our original cottage.  She is single and very close to my husband and kids.  She is even more frugal than we are and has more stache than we do. 

This new cottage already has 5 bedrooms, which is what we need for our extended family.  It is on a huge lot.  Our old cottage had 3 small bedrooms on a small lot and renovations were going to cost more than buying this new cottage and we would have an even smaller lot.  So, it was a great win for us!  It is move in ready, but does need some work, but it is work we can do as we go along.

I will see if I can post a link to the listing.  I'm not very good at that!

                                                                                       Miss Prim
« Last Edit: April 27, 2016, 06:50:12 AM by Miss Prim »

Dicey

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Re: Getting a mortgage after FIRE.
« Reply #19 on: January 29, 2016, 07:02:32 AM »
Ni-i-i-i-ce! That's what I was guessing the arrangement was going to be, but wasn't sure. Thanks for clarifying. That upstairs configuration looks like it will be ideal for her. I'm a little concerned that there doesn't seem to be any ventilation over the stove in the upstairs kitchen. I hope it's just not visible in the photos. Will Frugal Sis be on board for the reno wish list and costs?

I am so happy for you, Miss Primm! Right now I'm experencing more than a little twinge of jealousy about what your money will buy in your part of the world. 1.5 acres on a lake, wow!

Fishindude

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Re: Getting a mortgage after FIRE.
« Reply #20 on: January 29, 2016, 07:15:31 AM »
I don't think it would be fair to your sister in law if you had a mortgage on the new place and she wants to pay cash.
Worst case scenario ..... you go broke, bank takes the cottage and sister in law gets the shaft.

I'd tap your savings and pay cash in your situation, however if you feel the need to borrow just take out a home equity loan against your existing paid off home and pay for your half of the cottage free and clear.
« Last Edit: January 29, 2016, 07:17:46 AM by Fishindude »

Miss Prim

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Re: Getting a mortgage after FIRE.
« Reply #21 on: January 30, 2016, 04:14:28 AM »
Got the mortgage yesterday.  We had to put down more money for a down payment to get the mortgage, but that made my SIL happier.  And to Fishing dude, my SIL doesn't like debt, even if it is an irrational feeling, but I stated above that we have 1.3M and SIL actually has more than us.  Don't think anyone is going broke too soon.  Also, we will have the money from the sale of the other house which would just about pay it off anyway with how much we have to put down.  She is happy with how low the payment is, but still wants to pay it off in a few years, so that is fine with us.

We are all excited.                                         Miss Prim

Dicey

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Re: Getting a mortgage after FIRE.
« Reply #22 on: January 30, 2016, 11:39:44 AM »
Heck, I'm excited for you. All of you!

Miss Prim

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Re: Getting a mortgage after FIRE.
« Reply #23 on: March 24, 2016, 05:56:38 AM »
Well, we are finally closing on the property today!  It took us forever to get the mortgage.  Mortgage companies are not equipped to deal with people who live frugally and don't show a lot of money coming in.  It was a grueling process to say the least!  Will post more about all the problems we faced later on.

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boarder42

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Re: Getting a mortgage after FIRE.
« Reply #24 on: March 24, 2016, 06:05:49 AM »
I don't think it would be fair to your sister in law if you had a mortgage on the new place and she wants to pay cash.
Worst case scenario ..... you go broke, bank takes the cottage and sister in law gets the shaft.

I'd tap your savings and pay cash in your situation, however if you feel the need to borrow just take out a home equity loan against your existing paid off home and pay for your half of the cottage free and clear.

the amount of income you would have to claim to pay all cash for this makes no sense to go this path.  paying cash here is worse than the often heated pay down your mortgage vs invest debate. 

You made a great choice going with the mortgage OP.  Congrats on the new place it looks awesome.

Cassie

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Re: Getting a mortgage after FIRE.
« Reply #25 on: March 24, 2016, 01:28:36 PM »
That is awesome!  I have lived in the Midwest so know how much bang you can get for your buck.

Gone Fishing

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Re: Getting a mortgage after FIRE.
« Reply #26 on: March 24, 2016, 01:42:17 PM »
Glad it worked out!  I toyed with the idea of getting a HELOC pre-FIRE for that exact reason, but couldn't bear to go through the effort given how small the line would have been given our first is still around 70% LTV.   

Daleth

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Re: Getting a mortgage after FIRE.
« Reply #27 on: April 01, 2016, 09:09:05 AM »
The big banks likely won't touch you, since you don't fall into their typical box.

Look for a smaller, local bank who will do their own underwriting.  That's your best bet.

^---This.

We bought an oddball property in 2006 that the big guys wouldn't touch.  (The land was worth way more than the house on it.)  I called a local bank and the mortgage was handled by one of the VPs.  I think our interest rate was a point higher than the going rate at the time, but they totally understood what we were trying to do and bent over backwards to write the loan.

Thirding this recommendation. We used a local bank to buy our house, for which it is impossible to find comps, and they got very creative on the loan.

Dicey

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Re: Getting a mortgage after FIRE.
« Reply #28 on: June 01, 2016, 12:29:12 PM »
How's the property coming, Miss Prim?