According to an article recently highlighted in the New York Times, FHFA might realize that we are going to need some new programs to help retiring Boomers buy a new home in their Retirement. With the arrival of tighter underwriting standards, those with large cash asset deposit accounts and great credit scores have found it HARDER to get approved for a mortgage – if they are on retirement. Good news maybe? Could Freddie Mac be planning A mortgage program for Boomers?
The recent announcement by Freddie Mac to make changes to Underwriting rules, could help retiring baby boomers, and other home buyers with limited incomes but substantial financial assets, qualify for low-rate conventional mortgages.
Freddie Mac, announced a change in Underwriting standards would be coming two years ago. However, the standards were just incorporated into the Automated Underwriting System (AUS) this Spring. Most loan underwriters will not override the AUS system – so most borrowers were not aware of the additional qualifying power.
You may be wondering “Why would someone near or in retirement want to take on a mortgage?” We find that many people in NC want to have a home closer to children. It’s possible that they short sold a property somewhere else in order to get a job in a new location when the Economy slumped. Most of those Boomers have been renting. Now that they have their finances back on stronger footing, they are ready to buy again, or downsize to a smaller property that better suits their needs.
The fact that Raleigh and Charlotte NC housing markets are continually improving (coupled with low interest rates) make Freddie Mac’s new program to expand Retirement income eligibility criteria in a mortgage program for boomers, a real bonus. There are probably 20 people we’ve talked to so far this year that have options where they previously thought there was no hope of buying a home in Cary as they retired.
The change allows lenders to take into account a significant portion of a borrower’s financial assets when determining if their income qualifies them for a Freddie Mac Conventional mortgage.
For example, under the new guidelines, a portion of assets like individual retirement accounts (I.R.A.’s) and 401(k)s can now count toward a borrower’s income eligibility, even if you are not actively drawing those funds out at this time.
There are a few caveats with one being that the assets must be in a fully vested retirement account recognized by the Internal Revenue Service, and they can’t be subject to a withdrawal penalty and they can’t be accounts that area already being used, or as collateral for something else.
Here’s how it works … To determine eligibility, we add up the eligible assets; multiplies the total by 70 percent; and subtracts the funds needed to complete the transaction, like cash for the down payment, closing costs and escrows. his new program also requires that the borrower have 6 months of PITI left over after closing in “reserves,” so we’ll take that cash out too. Then, the remaining amount is divided by 360 months, and counted toward the borrower’s monthly income.
Here’s an example to help you to understand it better … Say you had an I.R.A. worth $100,000 and a down payment of $20,000, leaving $80,000 in assets to be used to determine your income for qualifying purposes. Let’s say that your payments will be $1000. So we would subtract $6000 (for 6 months reserves) and we have $74,000. Seventy percent of $74,000 leaves $51,800, which is divided by 360 months, leaving roughly $144 a month added to your income.
These assets are in addition and separate from dividends, interest payments, trust distributions and Social Security payments, which have long been eligible for consideration when calculating a borrower’s qualifying income. If you are already receiving Social Security – in some cases we can gross up your Social Security Payments by 15% (so more qualifying income).
It is potentially a “Big Deal” according to Freddie Mac for many prospective home buyers, including the “rapidly growing” population of retirees and near-retirees who would like to buy or refinance a home. If you are looking for the best rates, and the best way to buy a home – call Steve and Eleanor Thorne. Remember – mortgage rates are continuing to cycle higher, so time is on the side of making a decision sooner than later.