Using Retirement Account As Income For A Mortgage

September 10th, 2022
older couple in retirement

There are times that I have used a mortgage borrower’s retirement account balance/s as income, even if the borrower is not currently taking required withdrawals from the account/s. But how can an asset be used as income? It can, and the guidelines allow it. However, there are many rules to consider.

  • The mortgage must be for a 1-unit or 2-unit Primary Residence or a second home; no investment properties are allowed, and no 3-4 unit properties are allowed.
  • The mortgage must be a purchase loan or a no cash-out refinance, not a cash out refinance.
  • The maximum loan-to-value is 80%.
  • At least one borrower on the account must be 62 years old.
  • We take the account balance and divide by 240 to get the monthly income. For example: $800,000 401(k) account balance / 240 = $3,333.33/month in income to help qualify for a mortgage

All the Freddie Mac rules related to this can be seen by clicking here.

For retirement accounts that are already being used to take distributions as income, the Fannie Mae rules to document that as acceptable income are found here under the area marked “Retirement, Government Annuity, and Pension Income.” The main points are:

  • If retirement income is paid in the form of a distribution from a 401(k), IRA, or Keogh retirement account, determine whether the income is expected to continue for at least three years after the date of the mortgage application.
  • Eligible retirement account balances (from a 401(k), IRA, or Keogh) may be combined for the purpose of determining whether the three-year continuance requirement is met.
  • The borrower must have unrestricted access to the accounts without penalty.

If you are getting near retirement age or you are already retirement age, consider using your retirement accounts as income to help you qualify for a mortgage, even if you are not currently taking withdrawals from the account.

To contact me to discuss any income qualifying or other mortgage questions, click here to schedule a call or you can email me directly.

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Cash Reserves Requirements For Jumbo Loans – UPDATE

July 10th, 2022
dollar 1362243 1920

Jumbo loans, also called Non-Conforming loans, are loans that do not conform to the Conforming loan limits. Conforming loan limits can be found by clicking here. If you have a loan amount that is higher than the Conforming loan limits, then you have a Jumbo loan. Jumbo loans require that a mortgage borrower has cash reserves. The Jumbo loan cash reserves requirement is different from Conforming loans, in that Conforming loans many times do not require cash reserves at all.

Cash reserves is a certain amount that a lender may require that the borrower has left over after they pay their down payment and closing costs at closing, in reserve.

Different lenders have different requirements for cash reserves for their Jumbo loans. There are requirements for the amount of cash reserves, and there are requirements for the types of cash reserves.

Amount of cash reserves (the below is illustrative as it may vary from lender to lender):

6 months of the PITI (principal, interest, taxes, and insurance) are required in general.

4 months PITI if you are retaining your current primary residence

4 months PITI for each rental property you own

4 months PITI for a second home/vacation home that you own

Cash reserves are based on all recurring housing expenses for the subject property and in some cases for other property owned by the borrower. Cash reserves are also cumulative, so if you are buying a new home and have a rental property, per the above, you may need 10 months of cash reserves. Housing expenses, also known as principal, interest, taxes, insurance, and assessments (PITIA), include but are not limited to:

  • Principal and Interest (as used in the qualifying payment amount)
  • Insurances (hazard, flood, and/or mortgage)
  • Real Estate Taxes
  • Ground rent/leasehold
  • Special Assessments
  • Homeowners’ association fees
  • Monthly co-op fees
  • Any home equity loan or HELOC payment, if applicable

Types of cash reserves:

  • Cash accounts (checking account, savings account, money market accounts, CD’s)
  • Mutual Funds
  • Stocks
  • Gift money is usually not allowed to count towards cash reserves
  • Retirement accounts may or may not be allowed to count towards cash reserves

I have seen lenders go back and forth over the years on allowing retirement accounts, such as 401(k), 403(b), IRA, and TSP; to be used as cash reserves.

When a mortgage lender is considering retirement accounts as cash reserves, they are not suggesting that you must liquidate or borrow against the retirement account to generate cash. Lenders are only considering the balance of the retirement account without having to liquidate any of it or borrow against any of it.

Retirement accounts are not very liquid, and hence they shouldn’t be considered cash, which is why at some points in time I’ve seen lenders not allow retirement accounts to count towards cash reserves requirements.

But currently, as of the date of this blog, we have many lenders we work with that allow retirement accounts to be used as cash reserves. This is an important development because it now allows borrowers to only need to have their down payment and closing costs liquid, but not the cash reserves.

Mortgage guidelines can change frequently, please schedule a call or email me with questions on your specific situation.

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VA Cash-Out Refinance To 100% Loan-To-Value

June 14th, 2022
money g53fe80fe4 1920

A VA cash-out refinance can be used for many reasons. There are a few important things to know about cash-out refinancing to 100% loan-to-value (LTV) when using your VA eligibility.

On a VA cash-out refinance to a 100% LTV the 100% must include the VA funding fee. Read the rest of this entry »

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e-closings The Reality

May 30th, 2022
image gabf42fccd 1280

There has been a lot of talk about e-closings recently, which allows someone to close on a mortgage remotely from the comfort of their own home or office, without physically going to a title company office. However, knowing the details is important. You need to determine if this is an option that is available to you, and if it is a good idea for you.

As of the writing of this blog, e-closings are not available in all 50 states. You need to determine if your state has passed legislation to allow them. Then you need to find a mortgage lender and a title company that have the knowledge and technology needed to participate in e-closings.

You may also hear an e-closing referred to as a digital closing, electronic closing, remote closing, and other variations.

There are also different types of e-closings such as: Read the rest of this entry »

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Escrows For Weather Related Home Completion Items

May 11th, 2022
unfinished house

Lenders are sometimes asked by a mortgage borrower to allow an escrow account to be created for some items to be completed. Repairs cannot be addressed by putting money in escrow. Repairs are usually required to be completed prior to closing. However, lenders may allow an escrow account to be created for items unable to be completed due to weather. Weather related delays are most common in new construction homes.

In my 3.5 decades in the mortgage business, I don’t recall a lender I have worked for ever allowing repair escrows. That is because they are typically messy, and many times end up not being resolved in a timely fashion. There are contractor problems and other situations where the cost exceeds the escrow account reserve. Weather related escrows are a different story, but repair related escrows may be impossible to get approved by a lender. Read the rest of this entry »

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Are Well And Septic Inspections Needed To Get A Mortgage?

March 22nd, 2022
septic truck

Well and septic inspections may indeed be required to get mortgage approval. But it depends on the type of mortgage you are seeking.

A conventional mortgage through Fannie Mae or Freddie Mac typically do not require  well and septic inspections. I say “typically” not required because there may be an instance where they are required. Read the rest of this entry »

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How Much Mortgage Does My Car Loan Cost Me?

March 9th, 2022
car loan

When a mortgage lender analyzes your finances to qualify you for a mortgage, they’re looking at all of your debt along with the new proposed mortgage payment. The other debts that they consider outside of your new mortgage payment are debts like minimum credit card payments, car loans, student loans, and any losses from other rental property. They do not look at debts like utility bill payments, car insurance or cell phone bills.

A mortgage lender will approve your loan allowing you to spend a certain percentage of your gross monthly income on your new mortgage payment and your debts.

Let’s see how much more mortgage you could qualify for if you did not have a car loan. Then you can see if paying off a car loan off  leaves you with the cash needed to  make a down payment and pay the closing costs to purchase a new property. Read the rest of this entry »

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Will a Business Loan Affect Getting a Mortgage? Maybe.

December 21st, 2021
mortgage rules

If you own a business and have a loan for it, and you are planning on buying a home, you might be wondering if the business loan will affect whether or not you can get a mortgage. A business loan can impact your credit score if you are the sole proprietor of the business and take out the business loan in your name instead of the business’ name, or if you personally guarantee the loan. A lender will be looking to see if you and your credit are stable when they decide to give someone a mortgage loan.

Read the rest of this entry »

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2-4 Unit Condos Are Easier To Get A Mortgage Loan For These Days

December 5th, 2021
small condominium

In some urban markets a multifamily home is converted to condominiums. For example, a duplex is turned into two condominium units. Or a triplex is turned into three condominium units. Or a fourplex is turned into four condominium units.

The required condominium project review that needs to be done on most condominiums is waived on condos that don’t consist of more than four units. Read the rest of this entry »

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Maximum number of financed properties

November 7th, 2021
monopoly houses

There are some mortgage agencies, like Fannie Mae, that will not do a loan for an investment property buyer that already has what they consider to be excessive financed properties.

If you are buying a new primary residence, there is no limit to the number of financed properties that you already have.

However, if you are buying a second home/vacation home or rental property, you cannot have more than 10 financed properties already. Read the rest of this entry »

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