New lending rule helps retiree’s qualify for a mortgage
For the last few years the mortgage industry has been slammed with new rules, hundreds of them. For the most part these rules come from Fannie Mae and Freddie Mac and have restrained the availability of credit at every turn (although loans are still closing every week, borrowers are scrutinized very thoroughly).
Today though I got a rare piece of good news in the e-mail, and one that may benefit a lot of people. It is now possible for retiree’s to qualify for a loan using their net liquid assets (stocks, bonds and cash) as part of the equation for qualifying for a Fannie Mae or Freddie mac loan (Fannie and Freddie are the two government entities that end up funding the vast majority of the mortgages out there).
For the last three years or so retiree’s often have found themselves unable to qualify for a mortgage because they had to show adequate income to make the payments, just like everyone else. This was true regardless of the credit history, loan-to-value or the amount of assets held. Someone with ten million dollars in the bank faced the same debt-to-income test as someone with ten dollars in the bank.
As retiree’s have saved their whole lives to be able to retire and live off their assets many don’t show enough actual cash income from social security or interest and dividends to qualify for even a modest home. Perhaps it is because election year is coming up someone in the Government finally decided that this was downright ridiculous, and somehow the rules have changed.
The new rule is that if a retiree needs to show additional income the lender may calculate a drawdown of their liquid assets based on a 360 month (30-year) draw down. The way that works is that we take the amount of the liquid assets and divide it by 360 and add that number to other monthly income such as a pension or social security. The loan would still be eligible for sale to Fannie or Freddie once the lender closed the loan.
So, if a retired borrower has $1,000,000 in liquid assets the lender can assume that 1/360
th or that amount or $2,777 could be drawn out each month. If the borrower has $2,000 in other stable monthly income the lender could calculate debt to income ratios by adding the $32,777 and the $2,000 together in determining if the borrower could qualify for his loan.
This really is a huge milestone in returning some normalcy to the lending business. While these loans will always be a fairly small percentage of the overall market it’s good to see that regulators are starting to think outside the box.
I would hope that soon this line of thinking could be extended to all borrowers who achieve a certain level of financial independence. If a working family in their 50’s has a significant amount of liquid assets and are but a few dollars short on qualifying for a loan shouldn’t some consideration be given to the fact that they most likely can afford what they are trying to do.
We haven’t won the game yet, but let’s hope we are getting there.
Call me at 970-748-0342 to discuss your situation, or click here to e-mail me a question! I serve all the mountain resort communities including Vail, Avon, Beaver Creek, Eagle, Gypsum, Steamboat, Aspen and the Summitt County comminities of Copper, Frisco, Dillon, Silverthorne and Breckenridge.