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earlyretirement.
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April 26, 2013 at 12:30 AM #761657April 26, 2013 at 7:53 AM #761660
all
ParticipantA friend of mine just bought a house in north county, primary residence, all cash. He plans to refinance with 50-60% LTV loan.
April 26, 2013 at 9:25 AM #761663bearishgurl
Participant[quote=all]A friend of mine just bought a house in north county, primary residence, all cash. He plans to refinance with 50-60% LTV loan.[/quote]
I’ve seen this a couple of times as well, craptcha. In these cases, they were native San Diegans (imminent retirees) intending on returning to their “home turf” to “retire.” They used all cash to purchase in order to get their offers accepted and then took out 30-50% mortgages after COE (while still *employed* in another locale and purporting to refi an “investment property” in SD) in order to have a small MID for a few years until SS kicks in. At that time, they intend to retire the mortgage.
Buyers in this category only want as much MID that they can use on their tax returns to shield income and not a penny more. If that number is $4K or $7K per year in interest, so be it.
April 26, 2013 at 9:30 AM #761664SK in CV
ParticipantBG, what would be the circumstances where someone still employed could only use $4K to $7K or mortgage interest? Are you saying it’s in addition to their other home in their previous locale, and the total debt would otherwise exceed $1.1M?
April 26, 2013 at 9:53 AM #761665Participant[quote=SK in CV]BG, what would be the circumstances where someone still employed could only use $4K to $7K or mortgage interest? Are you saying it’s in addition to their other home in their previous locale, and the total debt would otherwise exceed $1.1M?[/quote]
The homebuyer is leaving their job soon but hasn’t yet applied for “retirement” so his/her employer doesn’t know their plans. But they want to qualify for a mtg for their “retirement home” while still employed. In recent years, it has been too hard for a borrower to qualify for a prime mtg on excellent terms while “cash-rich” but not able to document enough income to qualify for even for a ~$200K mtg. Thus, it is better to attempt to qualify while *still employed* but just take out enough mortgage to generate a MID to shield taxable retirement income and investment income (usually lower than income while still working).
Native San Diegans residing in other counties/states who wanted to return to SD weren’t and aren’t stupid. When they saw and heard of properties in their “home turf” being listed at prices often at or below the land value, many jumped in with offers, all the while knowing they had to be “all cash” in order to “win” the bidding wars. They figured they could “refi” to a mtg they were comfortable with in “retirement” AFTER COE and successfully did so.
April 26, 2013 at 10:01 AM #761666Participant[quote=bearishgurl][quote=SK in CV]BG, what would be the circumstances where someone still employed could only use $4K to $7K or mortgage interest? Are you saying it’s in addition to their other home in their previous locale, and the total debt would otherwise exceed $1.1M?[/quote]
The homebuyer is leaving their job soon but hasn’t yet applied for “retirement” so his/her employer doesn’t know their plans. But they want to qualify for a mtg for their “retirement home” while still employed. In recent years, it has been too hard for a borrower to qualify for a prime mtg on excellent terms while “cash-rich” but not able to document enough income to qualify for even for a ~$200K mtg. Thus, it is better to attempt to qualify while *still employed* but just take out enough mortgage to generate a MID to shield taxable retirement income and investment income (usually lower than income while still working).
Native San Diegans residing in other counties/states who wanted to return to SD weren’t and aren’t stupid. When they saw and heard of properties in their “home turf” being listed at prices often at or below the land value, many jumped in with offers, all the while knowing they had to be “all cash” in order to “win” the bidding wars. They figured they could “refi” to a mtg they were comfortable with in “retirement” AFTER COE and successfully did so.[/quote]
So it actually has nothing at all to do with being able to use $4K to $7K in mortgage interest, only the amount of the mortgage they’re comfortable with?
If they’re seriously “cash rich” and collecting SS, then they would have no problem qualifying for a $200K mortgage. They’d need income of less than $35K a year.
April 26, 2013 at 11:00 AM #761667Participant[quote=SK in CV]So it actually has nothing at all to do with being able to use $4K to $7K in mortgage interest, only the amount of the mortgage they’re comfortable with?
If they’re seriously “cash rich” and collecting SS, then they would have no problem qualifying for a $200K mortgage. They’d need income of less than $35K a year.[/quote]
You might be surprised, SK. Mortgage lenders today are REALLY hung up on “monthly income” for qualification purposes. It’s not that easy to get a “prime” mortgage when one’s “monthly income” is unverifiable or they are primarily living off passive income … ESPECIALLY if they haven’t yet taken their pension or all of the pensions they are or will be entitled to take.
Lenders don’t seem to care about available assets as much as W-2 income because a borrower is free to deploy those assets as he wishes during his mortgage term. He/she could essentially take out a high-ratio mortgage with a very low documentable income (~$35K, as you stated) and then immediately thereafter “spend down” his/her assets for any number of reasons.
On an ARM or 30-due-in-5 (or 7) loan, yes, a portfolio lender will consider assets in lieu of monthly income. But “Frannie” lenders will not nor will VA/FHA lenders.
For instance, I know a few veterans nearing retirement who have not yet used their VA funding entitlement. They could feasibly use it to buy a retirement home but would need to do so while they can still qualify for it conventionally (through W-2 income). A LOT of the over-50 crowd falls in the category of having assets but insufficient income to qualify for a mortgage today.
In answer to your first question, it has to do with exactly how much MID they will need to shield income in retirement (for a set amount of time … usually 3-7 yrs). After that period, the borrower plans to retire their mortgage entirely.
April 26, 2013 at 11:07 AM #761668ParticipantI wanted to add that I think the portfolio lenders have it right for this group. Many borrowers nearing retirement or who have taken early or deferred retirement can VERY EASILY pay PITI equal to 50% of their monthly income into oblivion. This group just doesn’t have the level of monthly expenses as do parents who are raising minor children. In addition, save for home maintenance and repairs, the majority of this group doesn’t really need anything. They already have everything they need and aren’t going to upgrade to all the latest gadgets/appliancess/vehicles, etc because they don’t care about such things. So they SHOULD be held to a different standard for mortgage – qualification purposes, especially if their credit is excellent.
April 26, 2013 at 11:14 AM #761669ParticipantBG, I just helped a friend get his retirement stuff in shape, which included refinancing his house. He’s retired, he was self-employed until December. (It would have been only mildly easier if he had done this before he retired.
His house in Mission Hills is worth around $1M.
He owes $300K on it, and just wants to refinance to a lower rate.
He has about $14K a year in SS benefits.
He has about $1M in cash/marketable securities.
He has an IRA with $450K in it that he doesn’t plan on touching until he has to.
We moved most of his cash/marketable securities into blue chip stocks yielding an average of 2.75%/yr, (which was NOT hard to do) so total income of $27,500. Just provided his monthly broker statement that showed the annual income, and they accepted it, irrespective of what his interest and dividends were in the prior year.
Total verifiable income of about $41K.
He got a 30 yr, fixed rate loan with payments of about $875 a month. Closed the loan in less than 30 days beginning to end with Quicken Loans.
April 26, 2013 at 11:42 AM #761671Participant[quote=jpinpb]BG – I am into some of the mid-century design. The interior of this home had no character worth preserving. The floor plan sucked, too.
The investors were planning on tearing down the place. I don’t think they were planning on a multi-family, as it is not zoned for that.
The 9700 sf lot is SLOPING in back. Unless you’re putting the house on stilts, much is not us able. You could maybe terrace a garden.
Whatever the investors build, it’s not going to be cheap. I said 400k to be conservative, but I can see them easily spent half a million to build something, on top of the 662 they spent and then sell higher to make a profit.
As I said, it will be interesting to see how it goes down.[/quote]
jp, apparently these “investors” (or whoever is buying the property) believe that it is “worth” $662K in its current condition. Even if the lot is 1/3 sloping, the slope STILL affords privacy. And you can’t take away the sit-down view. Views like this were worth ~$100K in the nineties but seem to be “worth” much more now. This property is by no means a “typical Clairemont house” nor does it have a “typical” lot. It’s particular location is atypical and therefore “special” to a subset of buyers.
Here is a similar property with a sloped (corner) lot (with alley access) in a slightly better location than your Bay Ho listing which we discussed here back on 1/28/13:
http://piggington.com/perfectly_preserved_early_70s_high_end_interior
http://www.sdlookup.com/Pictures-120050000
The above link is not ’70’s (as the OP stated) but actually ’50’s era (“mid-century”). It appears to be currently off the market but has not yet closed. Here is a current (downhill but updated) closed comp on the same side of the street with a 7600 sf flat lot which sold in 11/12 for $829K ($441 sf):
http://www.sdlookup.com/MLS-120032457-1214_Moana_Dr_San_Diego_CA_92107
Yes, it will be interesting to see how much your Bay Ho listing eventually sells for if it is actually knocked down, a spec home is built there and it is subsequently flipped.
April 26, 2013 at 12:06 PM #761673Participant[quote=SK in CV]BG, I just helped a friend get his retirement stuff in shape, which included refinancing his house. He’s retired, he was self-employed until December. (It would have been only mildly easier if he had done this before he retired.
His house in Mission Hills is worth around $1M.
He owes $300K on it, and just wants to refinance to a lower rate.
He has about $14K a year in SS benefits.
He has about $1M in cash/marketable securities.
He has an IRA with $450K in it that he doesn’t plan on touching until he has to.
We moved most of his cash/marketable securities into blue chip stocks yielding an average of 2.75%/yr, (which was NOT hard to do) so total income of $27,500. Just provided his monthly broker statement that showed the annual income, and they accepted it, irrespective of what his interest and dividends were in the prior year.
Total verifiable income of about $41K.
He got a 30 yr, fixed rate loan with payments of about $875 a month. Closed the loan in less than 30 days beginning to end with Quicken Loans.[/quote]
That’s awesome to hear, SK. You’re a good “friend.” Luckily, for him, your friend was only seeking a 30% LTV mtg in a prime area of SD. Do you think he still would have “qualified” for the $875 (P&I only?) mtg had he been seeking a >=40% LTV mortgage in a 400-500K area?
I think there are many more in this group who don’t own homes worth $1M and still owe 40% or more of their home’s current appraised value. Hopefully, values will go even higher in the coming months to help these folks refinance or sell and recover all of their investment (purchase price plus cost of improvements).
April 26, 2013 at 12:21 PM #761674Participant[quote=bearishgurl]
That’s awesome to hear, SK. You’re a good “friend.” Luckily, for him, your friend was only seeking a 30% LTV mtg in a prime area of SD. Do you think he still would have “qualified” for the $875 (P&I only?) mtg had he been seeking a >=40% LTV mortgage in a 400-500K area?[/quote]
Absolutely. This was a loan program that required 75% LTV or less. Incidental that it was in a prime area, it just had to appraise. If he could have somehow got his 20 troy pounds of gold into the bank, he would have qualified for a 15 year loan. (BTW, banks cannot, by law, have different lending standards based on things like “prime” v. “not prime” areas.)
April 26, 2013 at 3:14 PM #761676jpinpb
ParticipantBG – the investors are IMO gambling on the property. 662k + tear it down and rebuild as they intend to do, conservatively estimating costs to be between 400 to 500k. We are over a million dollars and haven’t even added in their profit they want to make on it.
The link for 1276 Moana is in 92107. Ocean Beach generally pulls in higher dollars than Clairemont/Bay Park.
April 26, 2013 at 4:12 PM #761679CA renter
Participant[quote=SK in CV][quote=bearishgurl][quote=SK in CV]BG, what would be the circumstances where someone still employed could only use $4K to $7K or mortgage interest? Are you saying it’s in addition to their other home in their previous locale, and the total debt would otherwise exceed $1.1M?[/quote]
The homebuyer is leaving their job soon but hasn’t yet applied for “retirement” so his/her employer doesn’t know their plans. But they want to qualify for a mtg for their “retirement home” while still employed. In recent years, it has been too hard for a borrower to qualify for a prime mtg on excellent terms while “cash-rich” but not able to document enough income to qualify for even for a ~$200K mtg. Thus, it is better to attempt to qualify while *still employed* but just take out enough mortgage to generate a MID to shield taxable retirement income and investment income (usually lower than income while still working).
Native San Diegans residing in other counties/states who wanted to return to SD weren’t and aren’t stupid. When they saw and heard of properties in their “home turf” being listed at prices often at or below the land value, many jumped in with offers, all the while knowing they had to be “all cash” in order to “win” the bidding wars. They figured they could “refi” to a mtg they were comfortable with in “retirement” AFTER COE and successfully did so.[/quote]
So it actually has nothing at all to do with being able to use $4K to $7K in mortgage interest, only the amount of the mortgage they’re comfortable with?
If they’re seriously “cash rich” and collecting SS, then they would have no problem qualifying for a $200K mortgage. They’d need income of less than $35K a year.[/quote]
I would argue that they are taking out a mortgage in order to preserve cash because they think they can earn more on that money than what they are paying in interest.
Contrary to the realtor rhetoric about the “benefits” of MID, it never makes sense to spend a dollar in order to save 30-40 cents (and that’s if you’re earning a pretty significant income) on taxes.
April 26, 2013 at 4:31 PM #761680Participant[quote=CA renter]
I would argue that they are taking out a mortgage in order to preserve cash because they think they can earn more on that money than what they are paying in interest.Contrary to the realtor rhetoric about the “benefits” of MID, it never makes sense to spend a dollar in order to save 30-40 cents (and that’s if you’re earning a pretty significant income) on taxes.[/quote]
I agree entirely. The argument that an interest deduction is “needed” for taxes is stupid. It was stupid back when the top tax rate was 70%. Using the leverage to increase overall return might make sense for some people.
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