Tucson AZ Home Loan Info

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Mortgage tip for recent retirees: Take a regular IRA distribution!

 

Pat Randles of SUNSTREET MORTGAGE, LLC is a businessman as well as a loan officer.  He and his wife own a manufacturing company in Tucson.  Patrick is a problem solver.

His most recent post addresses a problem that loan officers and REALTORS grapple with on a regular basis, and Patrick offers a very useful solution.

Mike in Tucson

 

Being an avid golfer, I tend to get a good portion of my business from other golfers. A recurring theme in my world is retirees with plenty of assets and minimal income. As a mortgage consultant, it is a little embarrassing to tell someone who has assets in the millions that they don't qualify for a mortgage on a 2nd home, even with 50% down.

2nd Home in Dove Mountain

Here is an example:

Income:

$5,500 per month from a small pension, social security, dividends and interest.

Expenses:

$2,100 per month for the mortgage , taxes, HOA and insurance on the primary residence.

As you can see, before we have even started factoring in a new property, we are at 38% debt to income. Fannie Mae allows a total debt load of 50% these days. Freddie Mac is a touch higher but so are their rates. Best case scenario assuming no other debts:

55% Highest allowed debt ratio (Freddie Mac Guidelines)-50% under Fannie Mae Guidelines.

-38% current debt ratio

______

17% multiplied by $5500 = $935.

As we all know $935 in terms of PITI and any HOA fee does not allow this buyer to borrow much more than $100,000 based on current interest rates and real estate taxes in the Tucson area.

Solution: Set up a monthly distribution from your IRA. A distribution of $3,000 per month could make the difference between qualifying for the mortgage on your second home with ten or twenty percent down as opposed to having the option of 2/3rds down or just pay cash. FNMA guidelines don't allow you to set up this distribution at the time of applying for a mortgage. You need to have it in place for 12 months in order for it to be counted as regular income.

Clubhouse at Heritage Highlands GC

Back to the quick math:

Income:

$8500 monthly. Just because you take a regular distribution doesn't mean you have to spend it!

Expenses:

$2100 = 25% of income.

55% less 25% = 30% of $8500 remaining to use towards your second home. By setting up this distribution this buyer can now qualify for a 2nd mortgage up to $2,500 monthly. That seems much more reasonable to me.

I know this doesn't apply to everyone but for those of you that work in golf and retirement communities, we are seeing this more and more often. Buyers with cash, assets, no debts, but little taxable income. Get this information to your clients so they can have at least 12 months history of taking this distribution and I won't have to be embarrassed when they call me to get a loan.

 ________________________

Patrick Randles

Sunstreet Mortgage, LLC

Tucson, AZ 85718

(520)850-7485

Comment balloon 5 commentsMike Jones • March 09 2010 09:34AM

Comments

That is a great way to boost your income.  Also, one thought.  You need to make sure you have enough in the IRA that whatever you are taking out now can continue to be taken out for the next 3 years or the underwriter will not count the income.

Posted by Joe Hansen, Joe Mortgage Team (Joe Mortgage - Precision Mortgage Inc.) over 9 years ago

Great post.  It shows that retirement planning needs to be planned and not just acting on a whim.  Thanks for putting this out there.

Posted by Gary Pike (Better Homes and Gardens Real Estate Metro Brokers) over 9 years ago

We don't run into many retired folks here but a great solution for those that do.

Posted by Terry & Bonnie Westbrook, Westbrook Realty - Grand Rapids Forest Hills MI Re (Westbrook Realty Broker-Owner) over 9 years ago

It is always good to get information on retirement - down here in Florida we get plenty of retirees!!!

Posted by Barbara-Jo Roberts Berberi, MA, PSA, TRC - Greater Clearwater Florida Residential Real Estate Professional, Palm Harbor, Dunedin, Clearwater, Safety Harbor (Charles Rutenberg Realty) over 9 years ago

Wow - lots of numbers!  I had to read this one twice before my brain absorbed it all!  Great info!

Posted by Dana Lim (Allstate Insurance) over 9 years ago

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