Mortgage News and Notes

A recent Wall Street Journal article was a reminder to us that not everyone is aware that you can get a home mortgage at virtually any age, even one that amortizes on your 120th (or later) birthday. Entitled “You’re Never Too Old to Apply for a Mortgage,” the Journal article makes two important points. One, the Equal Credit Opportunity Act forbids age discrimination in mortgage lending, and two, there are mortgage products now available which are tailored to those at or near retirement age. This means that if you qualify for a mortgage, you can get one even if you are in your 80s or older. In other words, your mortgage can be designed to outlive you.

 

Qualifying for the mortgage can be done the traditional way, with income from employment or a business, Social Security, monthly pension benefits, or regular distributions from an IRA or 401k. If income from those sources add up to an amount sufficient to meet the lender’s criteria, then it qualifies.

 

But what about those that don’t have fixed regular income, and instead take distributions from retirement investments as needed for expenses, or those whose Social Security and other monthly income is insufficient to qualify? You now have more options, as lenders have recently created mortgages that rely on your retirement assets, even if you are not taking regular distributions. These programs go by various names; asset depletion, asset annuitization, etc., but their main feature is that the lender will consider “imputed” income for qualifying purposes. Imputed simply means that the borrower need not take actual distributions, but instead the lender calculates what the borrower could reasonably withdraw on a monthly basis.

 

Both Fannie Mae and Freddie Mac allow lenders to make such loans to borrowers age 59.5 and older, but they use different formulas. With Fannie, the total value of retirement assets is first reduced by 30% (to allow for down markets), then the resulting amount is divided by 360 to get the monthly imputed income. For example, if your retirement investments are valued at $1,000,000, that would be 1,000,000 x 70% = 700,000 / 360 = $1944 in imputed monthly income. Freddie uses 240 months instead of 360, so in this example the imputed income would be $2917. Freddie also allows the use of non-retirement investment portfolios, for borrowers ages 62 and older.

 

Asset based mortgage loans can be a big help for those planning their finances ahead of retirement – it is one more tool for your financial toolbox. If you would like additional information on these programs, or if you wish to discuss how they might fit into your particular financial situation, please contact Margie. She would be happy to discuss the details with you.

 

Steven H Hofberg, Operations Manager

Posted in:Qualifying and tagged: debt to incomeQualifying
Posted by Steven Hofberg on January 22nd, 2020 11:11 AM

Dear Friends,

This week, I will address those items that should be followed by everyone regardless of score. Keep in mind that credit score management is a marathon, not a sprint. Your actions will take one or more months to come to fruition; sometimes a year or more in difficult cases.

 

Here are four tips that everyone should follow regardless of your score:

 

1. Make Sure Your Credit Reports are Accurate

 

Most everyone has three credit reports, each one from the major credit bureaus – Experian, Equifax and Transunion. Some credit providers chose one of the three, but for mortgage credit we must have a “tri-merged” credit report, which means a combined report including information from all three bureaus. A recent study by the Federal Trade Commission found that 20% of consumers had at least one error on their report. Your credit score is based on the data in those three bureaus, so checking them for accuracy is very important. You can do that for free once a year at AnnualCreditReport.com, the website run by the major bureaus under a mandate of the federal Fair Credit Reporting Act. Once you get the reports, check for errors in personal information (name, address, etc.), and review the list of credit accounts for accuracy. Disputes have to be filed with each bureau separately, and each individual dispute should be filed separately, meaning three disputes for each error.

 

2. Build a Strong Credit Age

 

For young people especially, having a short credit history will hinder your scores. A good average age for a credit history is five years or longer with at least three tradelines, or creditors. Someone with only a one year history will have significantly lower scores than someone with the same on-time payment record but over five years. So establish credit as soon as possible in your adult life (see the next section on getting and using a credit card).

 

3. Get and Use a Credit Card

 

Apply for and maintain at least two credit cards. Three would be better. Once you receive them, make at least one charge per month on each, and pay off the balance each month so you don’t incur interest charges. This will build your “Credit Age” as discussed above. But fair warning, if you make payments late on any card, your scores will drop substantially. Use your good credit wisely and don’t buy more than you can afford to pay off in a short period of time (ideally by the end of the month).

 

4. Monitor Your Credit Utilization Ratio

 

One of the most important factors affecting your score is your credit utilization ratio, which is the percentage of available credit that you are actually using. Try to maintain a 15% ratio, meaning that if you have a combined credit card limit of $20,000, your total credit card balances should be $3,000 or less, even if you pay off the entire balance at the end of the month. In any case, try never to exceed a 30% credit utilization ratio, or your scores will drop substantially. This is also the reason you should not close old credit accounts. Keep that available credit limit to lower your ratio, even if you rarely use the card.

 

Have a great week!

 

Steven H Hofberg

Operations Manager

 

 

Next week: More tips to improve your credit score.

Posted by Steven Hofberg on May 24th, 2018 7:10 AM

If you are using alimony or child support income income to obtain a mortgage, there are a few updates to the requirements that you should know. In order to use support payments as qualifying income, you will need:

1.  Separation Agreement

  • A signed Separation Agreement or Court Order is required.
  • The Agreement must be complete and fully executed.
  • It must reference the exact amount of support and timeframe of payments.
  • The amount of support must be a specific number and not a percentage of payor’s income.

2.  Documentation of Support History

  • The client must have at least 6 months history of support in order to close the loan. Some programs require as many as 12 month’s history.
  • The support money needs to come from an account in paying spouse’s name only.
  • The support money needs to be deposited into an account in receiving spouse’s name only.
  • Each support payment should be deposited separately from other checks.
  • Support can begin before the Agreement is signed as long as the payments are not less than the support per the agreement.

3.  Documentation of Continued Support

  • Support must continue for at least 3 years from the mortgage application date.
  • If different amounts will be paid during the 3 years, the lowest amount will be used to qualify
  • Support must be in the form of a monthly payment. It cannot be a lump sum payment or annual payments to use as qualifying income.
  • Child support can be grossed up by 125% for qualifying purposes.
Posted by Steven Hofberg on May 12th, 2015 11:08 AM

Archives:

My Favorite Blogs:

Sites That Link to This Blog: