Author Topic: Mortgage requirement  (Read 1765 times)

chicklets123

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Mortgage requirement
« on: January 24, 2020, 09:53:17 AM »
Do I need to be employed to get a mortgage?

We have some new properties that havenít closed yet.

If I fire before then but the other half is still working and we have enough in investments to cover the property value will they still approve us?




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Lucky13

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Re: Mortgage requirement
« Reply #1 on: January 24, 2020, 10:41:40 AM »
If you initially got approved based on your income, and then you quit, I guess the bank could refuse to fund the loan. But normally they don't verify your employment once you're already in escrow, so this seems unlikely. This is just based on my experience of having a half-dozen mortgages over the year but maybe someone here is a loan officer and can give a more authoritative answer.

chicklets123

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Re: Mortgage requirement
« Reply #2 on: January 24, 2020, 01:22:51 PM »

I guess these would be pre approvals... or what about a new mortgage? Can you get a loan if unemployed?


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Another Reader

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Re: Mortgage requirement
« Reply #3 on: January 24, 2020, 02:06:28 PM »
If you initially got approved based on your income, and then you quit, I guess the bank could refuse to fund the loan. But normally they don't verify your employment once you're already in escrow, so this seems unlikely. This is just based on my experience of having a half-dozen mortgages over the year but maybe someone here is a loan officer and can give a more authoritative answer.

Not true.  It's common but not universal for lenders to verify employment just before closing.

It's difficult to get a mortgage without regular income.  If you are retired and can show regular withdrawals or Social Security/pension income, many lenders will accept that.  The option is a more expensive and difficult to get asset based mortgage.


Dicey

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Re: Mortgage requirement
« Reply #4 on: January 24, 2020, 02:09:34 PM »
Paging @SwordGuy...

SwordGuy

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Re: Mortgage requirement
« Reply #5 on: January 24, 2020, 04:26:58 PM »
Paging @SwordGuy...

Ah, thanks, @Dicey , glad to help!

I just went thru this process.    I didn't pull out **all** my hair,  but it was a near run thing.

I have 4 sources of income:
1) Social security.   Need award letters and the SSA-1099. 

2) Farm income.   Partnership, so needed supporting tax returns..

3) Rental property income.    Needed supporting tax returns, insurance coverage, property tax bills, mortgage information and/or HUD closing statements (to prove they were cash sales).    My tax returns show I have a loss because we've been renovating new properties and the renovation expenses on the new properties were higher than the profits on the existing ones.   So this didn't help me qualify.   There are rules as to how much of the income might qualify but I didn't learn them 'cause, from a tax perspective, I didn't have any.     They were also pissy about how my property depreciation was calculated and dithered about that for almost 2 weeks.  I had to put them in touch with my CPA who set them straight, the goobers.

4) Stock/bond portfolio income.   We're pretty frugal so the only withdrawals we've made are to fund renovations or to make the RMDs we have to make.   None of that income counted for qualifying because it wasn't "recurring income".   It had to be "recurring income" instead of ad-hoc one-off income.   Since we were frugal enough to not need the recurring income, our stock/bond portfolio wasn't being counted in our favor -- despite having enough to buy 4 houses at the same price for cash and still have a portfolio left over.   On day 1 of the mortgage process I told them to tell me how much income I needed to qualify and any special rules I needed to follow.    Finally, over 3 weeks into the process, I finally got thru to one of them.  "Just tell me how much income I need and I'll have it tomorrow.   You don't have to be exact.  Just round it up to the nearest $1000 a month."  At this point I had to figure out which of my various 401Ks or IRAs to pull the money out of.   I had to dig thru the Fannie Mae and Freddie Mac guidelines for asset-based mortgages (that's the search term you need).   Best I could figure out was "Take 70% of the balance of the portfolio ACCOUNT, divide into 36, and that's the amount of income that account can support.  Recognizing it might be down a few % between when I calculated and when they verify the balance, I added in a bit more safety margin.   This got me over the hump.

bacchi

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Re: Mortgage requirement
« Reply #6 on: January 24, 2020, 04:49:44 PM »
I had to dig thru the Fannie Mae and Freddie Mac guidelines for asset-based mortgages (that's the search term you need).   Best I could figure out was "Take 70% of the balance of the portfolio ACCOUNT, divide into 36, and that's the amount of income that account can support.  Recognizing it might be down a few % between when I calculated and when they verify the balance, I added in a bit more safety margin.   This got me over the hump.

Interesting. Can you explain this more?

Say I have an account with $100k in it. Its accepted value is $70k.

Is the 36 based on the old ~1/3 goes to rent/mortgage/etc. rule? So if the mortgage payment is $1100/month, $3055 "income" is needed? What kind of monthly payment does a $70k account support?

SwordGuy

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Re: Mortgage requirement
« Reply #7 on: January 24, 2020, 06:31:01 PM »
I had to dig thru the Fannie Mae and Freddie Mac guidelines for asset-based mortgages (that's the search term you need).   Best I could figure out was "Take 70% of the balance of the portfolio ACCOUNT, divide into 36, and that's the amount of income that account can support.  Recognizing it might be down a few % between when I calculated and when they verify the balance, I added in a bit more safety margin.   This got me over the hump.

Interesting. Can you explain this more?

Say I have an account with $100k in it. Its accepted value is $70k.

Is the 36 based on the old ~1/3 goes to rent/mortgage/etc. rule? So if the mortgage payment is $1100/month, $3055 "income" is needed? What kind of monthly payment does a $70k account support?

I have two accounts, FatMan with $100k in it and LittleBoy with $50k.

70% of $100K = $70k.   $70k / 36 months = $1944.44.   This is the maximum income per month that the FatMan account is considered able to support for a 30 year mortgage.    LittleBoy can only handle half that, or $972.22 per month.   These two accounts can support $2916.66 per month.   However, FatMan is NOT considered capable of $2916.66 per month, with the expectation that you would then switch to LittleBoy when FatMan has been consumed.

Note that we're talking about a 15 or 30 year mortgage.  Obviously, something is wrong with the math I just described, which is best described as a lack of common sense.    The concept of the 4% rule fell on deaf ears.   So, as in many things to do with a mortgage, there are rules and there is common sense, and the consumer of the mortgage violates common sense at their peril.

Note that in my case, my portfolio was not worth ANY income until I set up a recurring income draw upon it.   They want to see the recurring income hit your checking account before it is useable by their formula for how much income the account will support.   Normal policy for a US mortgage is to show the last 2 statements for an account.   So, ideally I would have ALREADY set up that income stream well before I went shopping for a mortgage, early enough to show the mortgage lender 2 statements showing that income.

The fact that I had been living without such a draw and paying all my bills also fell on deaf ears.   In my case, I was starting SS in January.  My SS award letter was sufficient for allowing that SS income to count.    My SS annual award that was starting up was $3k shy of my annual new mortgage PITA cost.   Didn't matter.   I'm sitting on ~$1.5M in portfolio value and none of that portfolio would count as income until those recurring income payments hit my account.   

Here's what I did to get past that.   On 1-Jan I had pulled out the RMD of $14k plus an extra $6k (for $20K) out of one account.   I was going to use it to pay off a HELOC I had been using for a couple months to cover renovation expenses.   This particular account was an inherited IRA that was serviced by a financial advisor I had met in person years ago.   (My dad had died and my mom introduced us at his office.)   So I set up a recurring payment of $18k every six months and had the advisor send the mortgage lender a letter that said the $20k was part of a $36k recurring draw (with an extra $2k this time) that was paid out every six months.   I actually set up the recurring withdrawal so it wasn't technically a lie (even though the January money had been pulled out prior to me setting up a recurring payment.    (I hadn't read the Fannie Mae and Freddie Mac guidelines yet, so I didn't know better then.)
Note that until I could show them that the first payment hit my checking account it still DIDN'T COUNT as income.

Unless I actually happen to need $18K when the next withdrawal I'll cancel it and revert to a "send me money on a one-off basis when I tell you to."   

I hope that I made clear what I did and what was required of me.   If you understood that but are left thinking, "But that makes no financial sense..." then rest assured you've probably got this info down pat.

So, my best advice is to get all the money you are willing to use as a down payment in your checking account, set up recurring payments using the guidelines above, preferably from a taxable account so you can put unused money back into it later, and wait until you've got 2 statements showing all that.   You'll have a much easier time of it.

Plus, if you've got business dealings going on with irregular income or payments, do that business in a different checking account.  Otherwise, like me, you'll have to write up explanations of them.    It's a pain in the butt.

Oh, if you want to know, but "how much income do I need for a $200k mortgage?", I really couldn't tell you.   Sorry.

Omy

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Re: Mortgage requirement
« Reply #8 on: January 24, 2020, 06:45:23 PM »
Your lender will tell you how much you will need to withdraw from your accounts each month. You show them a statement or two demonstrating your withdrawals. After you close, you can stop the withdrawals. Be prepared for tax ramifications if you draw from an IRA.

bacchi

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Re: Mortgage requirement
« Reply #9 on: January 24, 2020, 07:20:30 PM »
What the?

Thanks, @SwordGuy , it makes sense but that is messed up. It's apparently a shell game that everyone, including the underwriter, is in on.

Omy

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Re: Mortgage requirement
« Reply #10 on: January 24, 2020, 07:45:05 PM »
It's ridiculous - especially when you could just write a check for the house (or for 3 or 4 houses).

Lucky13

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Re: Mortgage requirement
« Reply #11 on: January 24, 2020, 08:32:02 PM »
yeah thanks that is good to know about the recurring payments!  I usually transfer money every quarter but I could easily set it up to go monthly in case I ever need to "prove" regular income. That might even make be feel better once I quit my job later this year to have a "fake payday" every 2 weeks lol but it's pretty sad banks require this.

Dicey

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Re: Mortgage requirement
« Reply #12 on: January 24, 2020, 09:02:34 PM »
So @chicklets123, the reason I paged SwordGuy is to show you the easiest thing to do is 1. Stay employed and 2. Make no major purchases until the house you want closes. After that, do whatever makes you happy!

SwordGuy

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Re: Mortgage requirement
« Reply #13 on: January 25, 2020, 07:49:38 AM »
yeah thanks that is good to know about the recurring payments!  I usually transfer money every quarter but I could easily set it up to go monthly in case I ever need to "prove" regular income. That might even make be feel better once I quit my job later this year to have a "fake payday" every 2 weeks lol but it's pretty sad banks require this.

My recurring payments are semi-annual.   They don't have to be monthly. :)  They could even be annual.    They just have to be recurring.

It's not the banks, it's Fannie Mae and Freddie Mac.   They can't sell the loan to those entities if they don't meet the rules.

SwordGuy

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Re: Mortgage requirement
« Reply #14 on: January 25, 2020, 07:54:09 AM »
Setting up recurring payments isn't hard.   It is actually a piece of cake.

What was hard was finding out how much income they wanted me to have and the 70% value over 3 years nonsense.

Recurring income (except for the 70% value over 3 years) is treated like salary income. 

So any "how much mortgage can I afford calculator?" should get you in the ball park.

Rental property has other rules I don't understand (and hope to never again have to!)

Swish

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Re: Mortgage requirement
« Reply #15 on: January 28, 2020, 07:58:11 AM »
So I am in Canada and lenders here will provide commercial mortgages if you have no personal income. They base it off of DSCR:

https://www.investopedia.com/terms/d/dscr.asp

The catch is you have to put at least 20% down, get an appraisal and the interest rates are a bit higher than residential rates.

So my lender takes a rental assessment analysis from an appraiser who gives a range of potential rent for that area. This costs about $250.

Then based off of that they take the low end of the range so a recent one I had was $1300-$1600/mo.
From the $1300 they subtract the cost of taxes, insurance, vacancy, maintenance (ours plugs 600/yr per unit or 1% of total property value) from the revenues. Once they have that number they divide it by the payments and if the DSCR ratio is higher than 1.25 they will typically approve the loan.

Swish

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Re: Mortgage requirement
« Reply #16 on: January 28, 2020, 07:59:56 AM »
Oh and I forgot they require a statement of personal net worth listing all liabilities and assets. From what I can tell this is a qualitative measure and didn't impact the quantitative portion of the application.