Flush but frustrated borrower points out continued weakness in lending environment
When I applied for the loan, I asked if I would qualify since I retired nine months ago. I'm drawing a monthly pension of $2,308 monthly until death and voluntary termination pay (VTP) until 2014. My wife and I are 62, and we aren't drawing Social Security yet.
The loan officer called me last week to see if I could make another car payment so our debt/income ratio would be lower. I told him that I could pay it off if needed. He said no, just to make one payment. I made two payments just to be sure.
I asked if there was a problem and he said yes, they couldn't count my VTP as income since I wouldn't have it in three years. He wanted my wife to take Social Security. I told him no, we didn't want to do that at this time.
Three days ago, he called again to say our debt-to-income ratio was still too high. I told him that I wasn't happy since he assured me I wouldn't have a problem with the refinance.
I told him that I could pay off the car or even use funds to pay off our second home, lowering the new mortgage to $115,000 without any cash out. He called later to say no, that wouldn't work either.
I have figured that our monthly debt (loans, credit card minimum payment, homeowners insurance, taxes and proposed mortgage) is $1,346. The taxes, insurance and payment a recently purchased rental house is $687. My daughter and her family occupy the rental without a written agreement. The rent is $750. Our income from my pension is $2,308 monthly.
What I'm thinking about now is just using funds from our Roth IRA or cash account to pay off the second home and the rental we bought a year ago. The balance on the rental home is $64,000. The interest rate is 4.75 percent. Our auto loan has a balance of $1,752, financed through our credit union with probably a 5 or 6 percent loan.
We have $136,000 in a cash account with a discount broker, $50,000 in our credit union savings account, $109,000 in my wife's and my Roth IRA and $200,000 in our regular IRAs. We have no credit card debt.
My question is in what order do I pull cash out to pay off some of our loans? Should we use cash first? Would it be better to use the IRA or Roth? Our projected income is $87,000 for 2012 and 2013, $32,000 for 2014 and 2015, $46,500 for 2016 to 2018, $55,900 for 2019 and $89,500 for 2020 and beyond.
I would like to hear your suggestions on how to make this work.
A: We're chuckling to ourselves because your situation is indicative of why the housing industry hasn't yet rebounded.
You're the perfect mortgage borrower -- you're flush with cash, have no real debt, and have long-term income that will make this whole discussion irrelevant. Yet you can't get a mortgage because you don't fit neatly into the box this particular lender has in store for you.
We have two suggestions. First, if you really want to make this work with the lender, you have to turn yourself into a square peg for the square hole. By that we mean, you should have your wife pull Social Security. Don't spend the money. You will then qualify for the loan.
After you close, you can take all of the social security money you've received and return it to the Social Security Administration. That will roll back the clock and it will be as though she had never even applied for Social Security.
The second suggestion is to shop around for another lender -- one that truly wants your business. We often tell our readers that if a mortgage lender is making it this difficult for you to qualify, that company simply doesn't want the type of business you're bringing to the door.
Don't take offense -- it's a very strange real estate market and while we've made some improvements, it's still far from normal. Your experience shows that better than anything.
Let us know what you decide to do.
(Ilyce R. Glink's latest book is "Buy, Close, Move In!" Samuel J. Tamkin is a Chicago-based real estate attorney. If you have questions, you can call Ilyce's radio show toll-free (800-972-8255) any Sunday, from 11a-1p EST. Contact Ilyce and Sam through her website, http://www.thinkglink.com.)