Getting an investment loan after FIRE

[ceciliasdad]

I'm currently employed, plan to FIRE in one year.  I'm under contract on a duplex and trying to determine what finance option to go with.  One option balloons in 10 years (amortization in 20 years).  The other is a more typical 30 year loan. I like the numbers behind the 10 year term; I'm concerned however that I will have a lot of challenges getting another mortgage after FIRE to cover the remaining principal.

My questions:
- For those of you in FIRE, how are you able to purchase your rental properties?
- How up front should you be with lenders about your plans to FIRE?

I have learned some from this reddit post but I'd like to hear folks with more actual experience to weigh in.

EDIT: added one additional question about transparency with lenders.

[iamlindoro]

- For those of you in FIRE, how are you able to purchase your rental properties?

I am not yet FIRE, however, you can use the income from existing rental properties as income and that's what I'd be doing (though I plan to be done acquiring properties before FI).  You can also get credit for the subject of your purchase with a rental study, usually ordered with the appraisal.  Not sure if that's universal but it's been an option for me.  I suspect you could also use the regular liquidation of assets from your retirement accounts as a form of income, as well.

- How up front should you be with lenders about your plans to FIRE?

You should always be completely transparent and honest with lenders when responding to the questions they ask.  Being dishonest would be mortgage fraud.  However, I've never had a lender question me about my future plans at all, and I certainly wouldn't ever volunteer more information than requested.  That's just asking for further scrutiny.  Provide the proof of funds/income, provide all paperwork, and not one shred more information.

[ceciliasdad]

iamlindoro: thanks for the response. I'm checking with some local bankers to validate this.

[ceciliasdad]

My mortgage broker gave me the following notes:

• Any wage income  (gross salary/month)
• Income from current rentals owned - we would take a 2 year average based on your tax returns. Their is a long worksheet we have to do, but its basically your bottom line of what you report for income after all your expense deductions
  
• New income property you are purchasing - we would use 75% of what is considered the fair market rental amount - this is basically the amount an appraiser would say you can expect for rental income times 75% (to allow for any periods where it would be unoccupied)
• We can't use the sale of stocks, but we can use interest or dividend income you receive from the stocks. It would again have to be averaged over 2 years. We basically can only use income that is expected to continue for at least 3 years, which is why we cannot use sale of stock as income, as that is a one time thing and there is no guarantee of future stock prices. We can include the sale in your assets, to use as down payment or reserves, but we cannot use that as income to offset your debts.

[Dicey]

I'd go for the security of the 30 year fixed mortgage. Get the biggest, cheapest loan you can now, while money is practically free. You can always play around with accelerated payments later if you want to, but you're locked in with no balloon worries. When interest rates rise, and after you're FIRE'd, you'll have nothing to lose sleep over and you'll feel so smart to have this big ol' cheap loan.

BTW, as far as your lender is concerned, you are planning to move into one half of the duplex, right? Right??

Plus one to lindoro's thoughts on this issue, but I am not above the tiniest bit of smoke and mirrors, provided that you never, ever default on this loan for any reason whatsoever.

P.S. All this approval is conditional based on your ability to afford it and if the property pencils out. If not, fuggeddaboudit.