Author Topic: High assets, low income mortgage?  (Read 1062 times)

sockfight

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High assets, low income mortgage?
« on: November 02, 2020, 04:38:50 PM »
Is it possible for someone with high assets and low income to get a mortgage? For the sake of argument, imagine $1M assets, $30k income, interested in a $400k house. The low income is partly due to trying to start a couple of businesses that aren't yet off the ground and partly due to optimizing taxes for favorable health insurance. So, semi-FIREd, with an expectation of earning more money in the future.

Anyway, could withdraw the money to buy the house outright, but with mortgage rates so low, it seems wiser to leave money in the market if possible. Is that right? And if so, is it even possible to get a mortgage?

JLee

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Re: High assets, low income mortgage?
« Reply #1 on: November 02, 2020, 04:45:02 PM »
Rates are nuts now so I would absolutely finance, but I'd be skeptical of the ability to secure a mortgage with really low income. I am 3 months into a refinance and they won't even count my rental income for debt to income, let alone investments. 

LostGirl

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Re: High assets, low income mortgage?
« Reply #2 on: November 02, 2020, 04:59:28 PM »
It's going to be hard to get a mortgage because they use your debt to income ratio. If you have any income from your assets, you could try to bring that into the mix but lenders have a hard time with anything outside W2 income.  I'm in the same boat as @sockfight and am refinancing primary residence but have two other investment prop mortgage. I had to qualify on my income alone because I don't have a long rental history with the investments.

One strategy would be to work with a lender and ask them how much they would approve based on your income. I think usually its 40% so you could qualify for something with about a $1000/month payment.  It might be a good middle ground to paying in all cash, just using a large down payment and financing what you can.

tawyer

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Re: High assets, low income mortgage?
« Reply #3 on: November 02, 2020, 05:01:14 PM »
Yes, it is possible. You will find your options for lenders a lot more limited, and that their income equivalent from your assets is much less than 4%.

Yes, it's generally better to get the mortgage and leave the rest in the market. However, you mention low income due to optimizing taxes for favorable health insurance: this is one of the rare exceptions to "don't pay off your mortgage", but you will need to run the numbers yourself. It's quite possible that in generating income to pay off the mortgage you reduce your ACA subsidy to the point that it outweighs the benefits of being invested in the market.

Other things to consider are that paying off your mortgage, while statistically likely to leave you with less money in the end, in fact has a lower chance of failure due to sequence of returns risk shortly after retirement. Finally, cash buyers are often preferred buy sellers, so being able to close quickly with an all cash offer could get you a better deal than otherwise.

While I am generally member of the "don't pay off your mortgage" club, I think in some unusual circumstances it may be better to "don't even get a mortgage".

Aegishjalmur

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Re: High assets, low income mortgage?
« Reply #4 on: November 02, 2020, 07:15:30 PM »

Couple options:

1. Larger down payment to get DTI in line.

2. Set up a monthly distribution from your asset account of $xx needed to keep DTI in line. Have evidence of 2 months receipt of it in our bank account.

I would go read through this post. Lots of good info.
https://forum.mrmoneymustache.com/real-estate-and-landlording/morgages-after-fire/
« Last Edit: November 02, 2020, 07:17:48 PM by Aegishjalmur »

SwordGuy

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Re: High assets, low income mortgage?
« Reply #5 on: November 02, 2020, 10:08:47 PM »
You beat me to the link, @Aegishjalmur !

@sockfight , there is NO substitute for reading the Fannie Mae and Freddie Mac guidelines for asset-based mortgages.   Why?   Because they are unusual and you can't count on the mortgage folks having a clue.

Ideally, set up the recurring income streams that meet those guidelines early enough that you have two bank statement's worth of income from them before you talk to the mortgage lender.   Can't promise you it will simplify the process but it ought to.

clarkfan1979

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Re: High assets, low income mortgage?
« Reply #6 on: November 08, 2020, 12:57:05 PM »
If you are self-employed, you need 2 years of income on your taxes to qualify. "Low Income" is subjective. The objective measure is Debt to Income under 45%. I had heard you can go up to 49% with significant assets (retirement accounts).

cool7hand

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Re: High assets, low income mortgage?
« Reply #7 on: November 09, 2020, 04:25:37 AM »
Thanks! That link is very helpful.

spartana

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Re: High assets, low income mortgage?
« Reply #8 on: November 09, 2020, 03:58:56 PM »
If you are self-employed, you need 2 years of income on your taxes to qualify. "Low Income" is subjective. The objective measure is Debt to Income under 45%. I had heard you can go up to 49% with significant assets (retirement accounts).
Sometimes if you are much younger than traditional retirement age, especially if you are ER,  they won't count any of your retirement accounts as assets. Apparently you are too young to access those funds and so they don't count them. Regular investment accounts are probably different though. As a fellow high asset (mostly in retirement accounts) low income person I found it was impossible to qualify for a large mortgage or even qualify for to rent a place.

Fishindude

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Re: High assets, low income mortgage?
« Reply #9 on: November 11, 2020, 09:38:43 AM »
Loans get made like this all the time.
If you have high assets, simply pledge something as collateral against the loan and you should get very favorable rates and terms.

spartana

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Re: High assets, low income mortgage?
« Reply #10 on: November 11, 2020, 07:50:28 PM »
Loans get made like this all the time.
If you have high assets, simply pledge something as collateral against the loan and you should get very favorable rates and terms.
Can you pledge a financial asset like a TIRA or 401K for a loan? Especially if 20 or 30 years away from being able to access at 59.5 as most lenders probably assume you'll do. Especially if there may be other entities first in line to get that money if the OP defaults or dies. Or decides to spend it all  on hookers and blow ;-).

Fishindude

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Re: High assets, low income mortgage?
« Reply #11 on: November 12, 2020, 09:40:31 AM »
Can you pledge a financial asset like a TIRA or 401K for a loan? Especially if 20 or 30 years away from being able to access at 59.5 as most lenders probably assume you'll do. Especially if there may be other entities first in line to get that money if the OP defaults or dies. Or decides to spend it all  on hookers and blow ;-).

Doubtful.
It would have to be something the lender would have first lien rights on such as a CD, real estate, vehicle, equipment, etc.
« Last Edit: November 13, 2020, 07:51:28 AM by Fishindude »