How to Use Your Nest Egg to Qualify for a Mortgage

Little-known rules can help people on a fixed income refinance an existing mortgage or buy a new home.

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Realtor shaking hands with smiling couple outside house for sale
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By Rachel L. Sheedy

Want to refinance your mortgage before interest rates take off? Typically, a borrower needs to show enough work-related income to repay the loan. But as a result of a little-known change in underwriting rules, retirees may be able to use their nest egg to qualify for a new mortgage.

Freddie Mac, the government-sponsored housing finance giant that guarantees mortgages, now allows lenders to consider retirement-account assets to help retirees qualify when applying for a new mortgage or to refinance an existing one. The provision "lets you take advantage of your holdings to a greater degree," says Keith Gumbinger, vice-president of HSH Associates, which publishes mortgage information and rates.

Assets that can be counted under these rules include retirement accounts such as IRAs and 401(k)s, lump-sum retirement account distributions and annuities. "The borrower must be fully vested, and the retirement assets must be in a retirement account that is immediately accessible," says Brad German, a spokesman for Freddie Mac. That means the money cannot be subject to an early withdrawal penalty and cannot currently be used for income.

The formula to use a nest egg works like this: A lender takes 70 percent of "eligible" assets. The lender may then subtract closing costs and other loan expenses.
However, if you pay closing costs from a taxable or non-retirement account, the closing costs will not be subtracted from the eligible assets. Regardless of the loan term, the balance is then split by 360 months, and the monthly installment is added to your monthly income to help you qualify for a mortgage.

Say you have $1 million of eligible assets -- 70 percent of that is $700,000. After subtracting $10,000 in closing costs, you have $690,000. That amount divided by 360 is about $1,917. So $1,917 can be added to your monthly retirement income to help you qualify. Social Security benefits and income from dividends and interest have always been allowed to count under Freddie Mac underwriting standards.

Under these rules, generally known as "asset depletion" or "asset dissipation" rules, you will need a substantial down payment, says Ron Wivagg, national sales manager for Prosperity Mortgage, in Chantilly, Va. You'll need at least a 30 percent down payment if you're buying a new home or at least 30 percent equity if you are refinancing. "This helps us manage the risks involved in making this option available," says German.

Even though the asset rule changes went into effect in spring 2011, Freddie Mac executives noted in May on a company blog that the rules hadn't garnered much attention from lenders or borrowers. These rules are "just starting to get more popular as people are aging," Wivagg says.

Check With Lenders

To make use of these rules, Gumbinger advises asking several different lenders whether they are using the Freddie Mac guidelines. Finding a lender "shouldn't be too hard since any lender selling mortgages to Freddie Mac can make this option available to their customers under our guidelines," says German. He says that about 2,000 lenders nationwide do business with Freddie Mac, including all of the major national and regional lenders.

For those who are interested in refinancing, now may be the time to figure whether it makes sense for your situation. Mortgage interest rates were at 60-year lows, from about 3.5 percent to 4.5 percent, this spring. Although rates have risen, Gumbinger says that if you have an older mortgage with a higher rate, there could still be an opportunity for you to refinance.

The nationwide average interest rate for a 30-year fixed-rate mortgage was recently 4.76 percent, and a one-year adjustable rate mortgage averaged 3.02 percent, according to HSH Associates. For a snapshot of current mortgage rates in your area, check HSH.com and plug in your zip code.


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w_diago

Reverse mortgage loans can meet your retirement needs if you currently own a home. Like the name "Reverse mortgage" implies, instead of making payments to pay-off a mortgage a reverse mortgage makes payments to you.
http://www.reversemortgagelendersdirect.com/questions-answered/
http://www.reversemortgagelendersdirect.com/jumbo-reverse-mortgage/
http://www.reversemortgagelendersdirect.com/how-does-a-reverse-mortgage-work/
http://www.reversemortgagelendersdirect.com/reverse-mortgages-pros-and-cons/
http://www.reversemortgagelendersdirect.com/reverse-mortgage-rates/
http://www.reversemortgagelendersdirect.com/reverse-mortgage-loan/
http://www.reversemortgagelendersdirect.com/reverse-mortgage-calculator/
http://www.reversemortgagelendersdirect.com/reverse-mortgage-information/
http://www.reversemortgagelendersdirect.com/who-qualifies-for-a-reverse-mortgage/

December 02 2013 at 2:15 PM Report abuse rate up rate down Reply
Keith

FORGET MORTGAGES. Banks are repossessing homes by the millions, often without legal or just cause, kicking families out and leaving them with nothing they invested in their 'homes'. I have been renting all my life. I am not chained to 30 years of debt. I can pick up and spend 6 months in Asia if I want, and when I come back move in somewhere else. I don't pay taxes on a home either. QUIT BUYING THE BANKING BS.

October 18 2013 at 4:11 PM Report abuse rate up rate down Reply
millersburgcats

Well thank GOD, i can the millioin dollars I have in my retirement account to help me qualify for a loan. Wait, I don't have a million dollars and if I did, would I really need help qualifying for a loan?

October 18 2013 at 1:27 PM Report abuse +2 rate up rate down Reply
mac2jr

Who is Responsible? ©
This author recently went through an interesting development; he tried to purchase a Freddy Mac foreclosure house, and went to contract on it. Unfortunately, the Mortgage Lender required an appraisal of the property, and the appraiser required that the utilities be turned on, which on the surface does not seem to be unreasonable.

Due to the property being vacant for a long period and winterized, I offered up $500 to have a plumber go in and turn on the water, make sure there were no leaks or other water related problems, the Seller's agent, a local Real Estate, refused the offer. Additionally, the local authorities were getting complaints from the neighbors about trash and tall grass, the Seller's Real Estate was informed and ordered to clean up the mess.

So, here is what happened, the Seller's Real Estate paid someone to do the grass and cleanup, the job done was totally sub-prime and the place looked worse than if not done. The water was turned on without checking for leaks and some 4,000 or more gallons of water poured into the ceiling area from the broken Swamp Cooler line, and this water flooded down to the carpet through dozens of interior and exterior walls.

Now normally, water will not cause a problem, but if left to stand for a period will develop mildew and mold. The Seller's Real Estate was informed of this and asked by me to immediately dry up the building, they refused, and three weeks later the building' interior was black with mold. The Seller's Real Estate was then asked to get a Certified Company in to clean up the mess, they got a $8,000 bid and turned it down for a local handyman type that not only did not do the job properly, but caused nearly $20,000 in additional damage for his $650 job. The buyer, myself, refused to complete Closing and lost over $700 in out-of-pocket expenses incurred during this 'adventure' in stupidity.

So, the question is, who should have been responsible, Freddy Mac, or the Freddy Mac's entrusted Real Estate Representatives? I can see that if a owner still resides in a home for sale that the owner is responsible for any damages during the Contract to Closing period, but if the home is vacated and the Real Estate has the exclusive right to list, offer, and sell the property, should not the Real Estate also be responsible for that property under its control? And should a buyer who put money out of pocket have to lose that money if the deal goes south due to the Seller's agents NOT DOING THEIR JOB and expending due diligence to protect the rights and finances of all parties?

Last seen the house had a 'Do Not Enter, Biohazard' signs on both the front door and window, and Freddy Mac's Real Estate Agent was trying to sell the house 'As is' for more than this buyer's contracted price, even with the nearly $20,000 in damage, they want their commission at all cost to all.

Do we need a new law or regulation to protect absentee Seller's assets

October 18 2013 at 10:37 AM Report abuse +1 rate up rate down Reply
mac2jr

Short Sale Fraud? ©

Banks may be playing a big con game with the Short Sales; some are dropping the prices month after month until they find the 'value' of the property, and then they Foreclose rather than accept the buyer's offers or signed contracts. The bank then 'sells' the property for up to five times the 'true' value to itself, and shortly later puts the property back on the market at two to three times the actual value. All the while, taking tax breaks for the 'Losses' and cheating the unsuspecting new buyers that 'Think' they are getting a 'Deal', when they are actually paying far more than the property is worth.


This may be especially true if the property was originally a HUD, VA, FHA, or other government backed property.

Buying Short Sale or REO properties, the buyer has to take the risk as to paying for inspections, paying to turn on utilities, as to paying for appraisals, etc., which can easily cost the buyer upwards of $1,500.

This does not include the escrow which can run from $1,000 to $5,000 or more.

The seller and seller's bank holds all the cards, and can cancel at any time right up to a day or two from closing, and this leaves the buyer 'holding the bag' so to speak; he or she may in the course of days, weeks, or months get back his or her escrow money, but will not recover the out-of-pocket money, and trust me I have tried more than once.

I have even had my RE agents write into the contracts that if the seller or seller's agent FAIL to Close, that he, she, or they are responsible and must reimburse the buyer for my expenses, me, only to have the paperwork REFUSED.

Their theory is that 'they are already giving me a break in price' and therefore, they should not have to cover my expenses, which is their right; but it now allows them to NOT Close and the buyer to lose, which gets mighty expensive after one or two deals go sour.

We definitely need a LAW change that protects the buyer from inept sellers, the Banks, in these cases.

October 18 2013 at 10:37 AM Report abuse +1 rate up rate down Reply
mac2jr

On, September 18, 2013 I got notice that the Signed Real Estate Contract for a new home for myself was turned down because the SELLER's bank decided that THEIR selling PRICE was too low, and therefore since they had a credit worthy buyer with 25% down on the hook, that they, the Seller's bank, could arbitrarily raise the selling price by over 12% without the buyer, me, backing out. THEY WERE WRONG... AGAIN!

Now this is the fifth, yes 5th, house this now Non-homeowner Senior Citizen has tried to purchase in the states of Nevada and Arizona in the last 12 months, only to have the ADVERTISED PRICE become NULL and VOID soon after both the buyer, me, and the seller signed valid sale's agreements.

It is this Blatant GREED on the part of the BANKS we, YES WE, taxpayers bailed out due to their inept business management; this is what is keeping the economy from growing, NOT the Obama Administration or Government.

This has to change, and the next Banks that cannot manage their business MUST be allowed to FAIL.. their business practices demand it....

October 18 2013 at 10:35 AM Report abuse +2 rate up rate down Reply
mac2jr

Watch for the rip-offs. The REOs, Short Sales, Forclosure Auctions, and the HUD sales are prone to nasty BANKS, nastier Real Estate Brokers, etc., offering properties at a 'low-ball' price and then raising the price when you sign the contract hoping you will be stupid enough to pay the 10 to 250 thousand more. And if you do nail them to their 'asking' price, they pull the property off the market, buy it back through another branch, and put it back on the market for two to three times the price they contracted to sell it to you.

How do I know about this, well I have tried to pay their ASKING PRICE seven (7) time in the last year in both Arizona and Nevada, and each purchase has been screwed by the Seller's Bank at the last minute before closing, where the price doubles or the property is pulled..

October 18 2013 at 10:33 AM Report abuse +2 rate up rate down Reply
mac2jr

Report last week said that most retired Americans have about $50,000 MAX in liquid assets; the government shutdown this last two weeks shows that many Americans don't even have 2 DAYS worth of liquid assets..

October 18 2013 at 10:27 AM Report abuse +1 rate up rate down Reply
John

I guess that's a good idea for the people who are not planning to ever use the money they saved for retirement in retirement.

October 18 2013 at 9:24 AM Report abuse +3 rate up rate down Reply
HonknDodge

I'd really like to know the percentage of people who have money in a 401 plan that have at least $1,000,000.00 in it. I'll bet it's a very small percentage.

October 18 2013 at 8:12 AM Report abuse +3 rate up rate down Reply