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Own my house, no income, have assets... how to take cash out?

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rated:
Okay, here's the deal:

  • Own my home free and clear, value ~650k.
  • Would like to borrow 300k at <5% to make an investment, timeframe is 3-4y max.
  • I semi-retired a few years ago.  Did not work last year and paid $0 income tax.
  • If it matters, this year I've earned 200k doing consulting work YTD, but I may make just another 50-100k through the end of the year.
  • I have about 1.5M in investment assets.

I'm aware I can take a margin or pledged-asset loan, but my preference is to leverage my real estate instead.  I've talked to a bunch of local banks, and even the ones who keep a portfolio want to see income at least one year back plus this year's books.  I'm surprised I can't find a lender who'd take first position on a 50% LTV home in a strong RE market with "no doc" but looking at my total picture and manually underwriting.  Do these exist?  Anybody have any ideas?

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Thanks for the link to siva -- will check it out.   (Not willing to pay hard money rates.)

Nebster (May. 06, 2017 @ 12:00a) |

It is given my circumstances.  If it were more efficient simply to sell, I wouldn't have started this thread.

Nebster (May. 06, 2017 @ 12:01a) |

That advice would have been true a few years ago, but now we have this thing called ACA cost sharing subsidy.  And for m... (more)

Nebster (May. 06, 2017 @ 12:07a) |

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rated:
It might not become feasible until next year after you file taxes showing healthy income. Maybe you have other reasons, but do you know Interactive Brokers offers easy margin loans that have very low (but adjustible) rates? This page says the blended rate for $300k would be 2.08% right now: https://www.interactivebrokers.com/en/index.php?f=interest&p=sch...

I hope your situation gets attention from the many folks here who have a drive to pay off their mortgages asap. You've got pretty good wealth, but a lot of it is going to be difficult and expensive to use. As I foresee retirement drawing near, mortgage qualification is very much a factor in the plan. The big issue is that I'd like to make our decision on where we plan to live before I stop working, so that it should be easy to get one more big mortgage for that residence.

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Thank you for posting the perfect example of why I will go into retirement with a giant mortgage on my house.

Link to more reasons why you should never pay off your mortgage.

As for your dilemma, I would keep trying the local community banks in your area.  I too am surprised that you haven't been successful.  You might just have to knock on a few more doors.  Try to get past the front desk and talk to the senior lender or the president, even better if you know any community bank board members who could put in a good word for you.

rated:
You might want to consider offering to put up a very large escrow. For example, if you borrowed $360k, and put $60k in escrow, the bank would be assured it would get payments for the next three years, potentially reducing concerns about your lack of recent income history. It would cost you a bit more, but might be a solution.

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cestmoi123 said:   You might want to consider offering to put up a very large escrow. For example, if you borrowed $360k, and put $60k in escrow, the bank would be assured it would get payments for the next three years, potentially reducing concerns about your lack of recent income history. It would cost you a bit more, but might be a solution.
  Escrow rules are pretty strict.  Lender cannot hold more than what's legally required to make payments out of escrow.  They must refund an overage when annual escrow analysis is done.  Also, the lender can only pay for certain things out of the escrow account.  They can't even deduct late payment fees from the escrow account. 

rated:
ach1199 said:   
cestmoi123 said:   You might want to consider offering to put up a very large escrow. For example, if you borrowed $360k, and put $60k in escrow, the bank would be assured it would get payments for the next three years, potentially reducing concerns about your lack of recent income history. It would cost you a bit more, but might be a solution.
  Escrow rules are pretty strict.  Lender cannot hold more than what's legally required to make payments out of escrow.  They must refund an overage when annual escrow analysis is done.  Also, the lender can only pay for certain things out of the escrow account.  They can't even deduct late payment fees from the escrow account. 

You are talking about two different things.  You are describing requirements for a mortgage escrow account used to pay insurance and taxes.  Cestmoi was suggesting an escrow in the generic sense, essentially putting funds on deposit in the bank to assure payments on the loan.  It would be additional security for the bank and could easily be accomplished in the form of a pledged CD or something similar.    

rated:
SlimTim said:   It might not become feasible until next year after you file taxes showing healthy income. Maybe you have other reasons, but do you know Interactive Brokers offers easy margin loans that have very low (but adjustible) rates? This page says the blended rate for $300k would be 2.08% right now: https://www.interactivebrokers.com/en/index.php?f=interest&p=sch...

I hope your situation gets attention from the many folks here who have a drive to pay off their mortgages asap. You've got pretty good wealth, but a lot of it is going to be difficult and expensive to use. As I foresee retirement drawing near, mortgage qualification is very much a factor in the plan. The big issue is that I'd like to make our decision on where we plan to live before I stop working, so that it should be easy to get one more big mortgage for that residence.


Very, very true. I caution people all the time about this when heading into retirement or even leaving their W2 job for self employment. Your days of easily tapping your home equity when needed are over.

rated:
Nebster said:   Okay, here's the deal:

  • Own my home free and clear, value ~650k.
  • Would like to borrow 300k at <5% to make an investment, timeframe is 3-4y max.
  • I semi-retired a few years ago.  Did not work last year and paid $0 income tax.
  • If it matters, this year I've earned 200k doing consulting work YTD, but I may make just another 50-100k through the end of the year.
  • I have about 1.5M in investment assets.

I'm aware I can take a margin or pledged-asset loan, but my preference is to leverage my real estate instead.  I've talked to a bunch of local banks, and even the ones who keep a portfolio want to see income at least one year back plus this year's books.  I'm surprised I can't find a lender who'd take first position on a 50% LTV home in a strong RE market with "no doc" but looking at my total picture and manually underwriting.  Do these exist?  Anybody have any ideas?


You've made $200k already this year? That's some good work for 3.5 months.

rated:
Used to be, you could get a stated income loan for this very situation. But after 2008 they're a unicorn. Can you get a heloc on your primary residence and use that?

I do think a cheap margin loan would be ok. Especially if you only do it for a year or so until you can get permanent financing.

rated:
dcwilbur said:   
ach1199 said:   
cestmoi123 said:   You might want to consider offering to put up a very large escrow. For example, if you borrowed $360k, and put $60k in escrow, the bank would be assured it would get payments for the next three years, potentially reducing concerns about your lack of recent income history. It would cost you a bit more, but might be a solution.
  Escrow rules are pretty strict.  Lender cannot hold more than what's legally required to make payments out of escrow.  They must refund an overage when annual escrow analysis is done.  Also, the lender can only pay for certain things out of the escrow account.  They can't even deduct late payment fees from the escrow account. 

You are talking about two different things.  You are describing requirements for a mortgage escrow account used to pay insurance and taxes.  Cestmoi was suggesting an escrow in the generic sense, essentially putting funds on deposit in the bank to assure payments on the loan.  It would be additional security for the bank and could easily be accomplished in the form of a pledged CD or something similar.    

  Exactly.  Funds put on deposit at the financial institution, with the agreement that, in the event a payment is missed, the financial institution can draw the funds.  The OP can only withdraw them once the loan is paid off. 

rated:
Can you ask the bank or brokerage that holds your investment assets to do this for you if they make mortgage loans?

If they say no, find one that does and offer to move the bulk of your assets there in exchange for this service. Maybe you'll find a creative sales guy that needs to hit numbers and knows a creative underwriter.

rated:
Are you Over 62? Do you think a Reverse Mortgage would work here?

rated:
How far are you away from your otd assets? Is this even worth your time?

rated:
My usual response is to find a small portfolio lender that doesn't have to make conforming loans. A small town bank or credit union, perhaps. Parking your assets there might make the decision easier.

rated:
HELOC isn't an option here?

rated:
Let us know what you find. This scenario comes up from time to time here.

rated:
You should apply for a HELOC.  If the primary source of repayment, in this case your personal cash flow, is not sufficient to service the fully advanced loan amortized over 20-30 years (whatever the amortization period is at the end of the draw period) with a comfortable cushion, you will not pass the initial screen from the loan processor at the vast majority of banks. No matter how strong the secondary source of repayment is, in this case the liquidation of your primary residence, if your primary source of repayment is not deemed acceptable you will initially be turned away. Banks do not get paid enough to exclusively rely on one source of repayment. Additionally, foreclosing is expensive, time consuming and comes with reputation risk. As someone else mentioned, try to find a chief lender from a local community bank that also runs commercial and you may have better luck. Commercial underwriting is not subject to the same underwriting standards as residential and one with commercial experience may see that your request makes sense given your YTD earnings, verifiable liquid assets and ability to consult as needed to earn additional income. He/she may approve your request with exceptions to the bank's credit policy. A debt service reserve, or escrow account, in an amount that you should negotiate if presented as a requirement, may be requested to pay the monthly interest payments. To further encourage approval, you could offer to move your entire depository relationship over to the bank as well, and purchase other products and services they offer (insurance, etc.). I'm a commercial lender with zero residential lending experience, but am also curious how you make out so please keep us updated.

rated:
Thanks for all the tips, guys. Many good points made here. I'll just respond to a few of them, paraphrased, for now:

Re: waiting a year, yes, several folks I talked to said they would consider it after showing one year of earnings (tax return) plus books for the current year showing similar progress.

Re: IB margin, yes, all of my after-tax securities are at IB, in part because their margin program is the best and in part because their FX options are similarly efficient. For other reasons, I'm interested in trying to leverage my real estate rather than my stock portfolio for this particular transaction.

Re: obtaining a loan before retiring, I did actually look at it briefly. At the time, my theory was to secure a HELOC as a backup plan. But since I owned my home outright, I found I was going to have some fees and hassles (re-appraising even though I just made an arms-length purchase), and I had the IB margin option for emergencies, and I figured the HELOC could get prematurely closed out if things went pear-shaped. So I just decided not to waste time with it. Moreover, at that time, I didn't envision a scenario where I might have so much cap gains penalty and still want to make a big investment in something else. Oopsee. In retrospect, I should have gone through the minor hassle and done it.

Re: payment escrow, I'd be happy to do that if it made them comfortable. It sounds like trying to get to a more senior and commercial-oriented lender is worth a shot.

Re: age, I'm 36.

Re: consulting income, yes, I landed a lucrative gig and pounded out some work in the first quarter. I don't expect to maintain that rate per unit month, although I can do that kind of work on a more leisurely pace probably for a long time to come. I may actually look at deferring as much of it as I can into 2018 so I can show "two years" of it. If a real human with a brain looked at what I was doing, they could probably get comfortable with my earning potential rather than relying on formulaic, backward-looking tax return data.

Re: HELOC, those are what I've asked for actually. I don't really care whether it's a HELOC, HEL, or regular mortgage.

Re: "otd assets," I'm not sure what that means. If you're wondering whether I can just earn my way to the cash... yes, but after taxes it would still probably take a year or more. It would be much more efficient for me to slow the earning down, plus I'd rather not work quite so much. And the investment opportunity will probably not be around six months from now, much less 12 or more.

Re: stuff I forgot, I neglected to mention that I have another 700k in pretax assets. I can't really access much of that in any near-term way, so I think it's irrelevant for this discussion... but maybe I'm wrong. My NW is right at 3M, if you don't count my career capital and subtract my laziness.

My scenario probably sounds contrived, but if you ignore my weird surrounding circumstances, the basic question of how to access equity with assets but "no income" is I think pretty interesting (frustrating). I'll come back here with an update after I've spent some more time trying to hunt something down. But I'm pessimistic given that this group doesn't have any slam-dunk ideas for me already... if fwf doesn't know about it, it probably doesn't exist!

rated:
Wouldn't you rather be fishing? Or is this your version of fishing?

rated:
Well, the easiest way to access assets is to sell them

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TravelerMSY said:   Well, the easiest way to access assets is to sell them
  but then you can't use them any more

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rufflesinc said:   
TravelerMSY said:   Well, the easiest way to access assets is to sell them
  but then you can't use them any more

  My brain has limited space. I have to forget something to learn something new.
I can't just keep piling on new information because I want to.

in this situation he may not be able to keep piling on new assets just because he wants to. You seem to be implying that he can keep using all of his assets and get new ones without doing anything? Perpetual wealth machine?
 

rated:
imbatman said:   
rufflesinc said:   
TravelerMSY said:   Well, the easiest way to access assets is to sell them
  but then you can't use them any more

  My brain has limited space. I have to forget something to learn something new.
I can't just keep piling on new information because I want to.

in this situation he may not be able to keep piling on new assets just because he wants to. You seem to be implying that he can keep using all of his assets and get new ones without doing anything? Perpetual wealth machine?

  that's what he asked, isn't it? to leverage is existing asset

rated:
rufflesinc said:   imbatman said:   
rufflesinc said:   
TravelerMSY said:   Well, the easiest way to access assets is to sell them
  but then you can't use them any more

  My brain has limited space. I have to forget something to learn something new.
I can't just keep piling on new information because I want to.

in this situation he may not be able to keep piling on new assets just because he wants to. You seem to be implying that he can keep using all of his assets and get new ones without doing anything? Perpetual wealth machine?

  that's what he asked, isn't it? to leverage is existing asset


And selling am existing asset meets that request.

rated:
Nebster said:   If it matters, this year I've earned 200k doing consulting work YTD, but I may make just another 50-100k through the end of the year.
 

  The title of this thread says no income. Isn't that a contradiction? Since when isn't consulting work considered income?

rated:
imbatman said:   
rufflesinc said:   
imbatman said:   
rufflesinc said:   
TravelerMSY said:   Well, the easiest way to access assets is to sell them
  but then you can't use them any more

  My brain has limited space. I have to forget something to learn something new.
I can't just keep piling on new information because I want to.

in this situation he may not be able to keep piling on new assets just because he wants to. You seem to be implying that he can keep using all of his assets and get new ones without doing anything? Perpetual wealth machine?

  that's what he asked, isn't it? to leverage is existing asset


And selling am existing asset meets that request.

  but once he sells the house, he can no longer live in it. presumably OP wants to keep living in it.

OP , do you want to keep living in your house?

rated:
atikovi said:   
Nebster said:   If it matters, this year I've earned 200k doing consulting work YTD, but I may make just another 50-100k through the end of the year.
  The title of this thread says no income. Isn't that a contradiction? Since when isn't consulting work considered income?

  OP did it under the table and didn't declare it on taxes

rated:
atikovi said:   
Nebster said:   If it matters, this year I've earned 200k doing consulting work YTD, but I may make just another 50-100k through the end of the year.
  The title of this thread says no income. Isn't that a contradiction? Since when isn't consulting work considered income?

  
Last year I had no income, so my 2016 tax return shows a big fat goose egg.  And the lenders generally won't consider less than one year of intra-year income, so this year's income doesn't count, yet.  It's as if I have "no income."

rated:
rufflesinc said:   OP , do you want to keep living in your house?
  
Yeah, we're still living here.  

rated:
Hard Money lenders may accommodate if your willing to pay double digit rates

If you can show 6 months income something like this may work
http://www.mortgagedepot.com/siva-program/

rated:
Sell $300k of your $1.5m....this isn't that tough a call. After showing some taxable income you should be an able to take it out of your house next year.

rated:
In true zero-income years you should be doing traditional IRA to Roth conversions. That creates taxable income but is pretty cheap since you get the benefit of the standard deduction and exemptions, plus the early brackets are low. Even more so if you're married.

rated:
motsuka said:   Hard Money lenders may accommodate if your willing to pay double digit rates

If you can show 6 months income something like this may work
http://www.mortgagedepot.com/siva-program/

  
Thanks for the link to siva -- will check it out.   (Not willing to pay hard money rates.)

rated:
rascott said:   Sell $300k of your $1.5m....this isn't that tough a call. After showing some taxable income you should be an able to take it out of your house next year.
  
It is given my circumstances.  If it were more efficient simply to sell, I wouldn't have started this thread. 

rated:
TravelerMSY said:   In true zero-income years you should be doing traditional IRA to Roth conversions. That creates taxable income but is pretty cheap since you get the benefit of the standard deduction and exemptions, plus the early brackets are low. Even more so if you're married.
 
That advice would have been true a few years ago, but now we have this thing called ACA cost sharing subsidy.  And for my family, with numerous pre-existing and ongoing medical conditions, we come out massively ahead by managing our (unearned) income down to the minimum.  

 

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