As a retiree, are you asset rich but income poor?
You might sit on a big IRA or 401(k) account, but with little income from social security and pension plan, your chance of refinancing or getting a mortgage loan with a great rate is extremely limited, thanks to a "debt to income" ratio used by all lenders. You probably won't even qualify for a loan!
What can you do?
You should take advantage of a little known plan offered by Freddie Mac and Fannie Mae for seniors.
Here is a hypothetical example -
You have $500K in a retirement savings account, you haven't touched it but could without any IRS penalty because you are older than 59 and half. You like to refinance with a low interest rate, but your debt to income ratio is too high.
If you use the Feddie Mac's guideline, you can ask the loan officer to use your untapped $500K retirement asset, he or she may apply a 70% discount rate to that amount, which arrives at $350K.
Now, the underwriter divides the $350K by 360 (for a 30-year loan), that is amount $1K per month. The lender can add this to the senior's current monthly income - social security payment or pension income, for the purpose of recalculating debt-to-income ratio.
In this way, a retiree doesn't have to take money out of the retirement fund, but still qualifies for a low rate loan.
If your loan officer is not familiar with this guideline, ask him or her to call Freddie Mac or Fannie Mae, but don't let the high debt-to-income ratio be an obstacle for you to get a great loan!
You might sit on a big IRA or 401(k) account, but with little income from social security and pension plan, your chance of refinancing or getting a mortgage loan with a great rate is extremely limited, thanks to a "debt to income" ratio used by all lenders. You probably won't even qualify for a loan!
What can you do?
You should take advantage of a little known plan offered by Freddie Mac and Fannie Mae for seniors.
Here is a hypothetical example -
You have $500K in a retirement savings account, you haven't touched it but could without any IRS penalty because you are older than 59 and half. You like to refinance with a low interest rate, but your debt to income ratio is too high.
If you use the Feddie Mac's guideline, you can ask the loan officer to use your untapped $500K retirement asset, he or she may apply a 70% discount rate to that amount, which arrives at $350K.
Now, the underwriter divides the $350K by 360 (for a 30-year loan), that is amount $1K per month. The lender can add this to the senior's current monthly income - social security payment or pension income, for the purpose of recalculating debt-to-income ratio.
In this way, a retiree doesn't have to take money out of the retirement fund, but still qualifies for a low rate loan.
If your loan officer is not familiar with this guideline, ask him or her to call Freddie Mac or Fannie Mae, but don't let the high debt-to-income ratio be an obstacle for you to get a great loan!
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