When working with borrower’s just into retirement years they sometimes come with a unique challenge of FANTASIC credit, TONS of assets, but low-income due to being retired.  Nothing more frustrating then telling a perfect borrower like this “sorry I can’t get you a mortgage due to your income”  UGGGGG!!!

Little used income tip

Here is a little used but allowable income tip that may get you the loan other’s won’t be able to pull off.  It is called Employment Related Assets as Qualifying Income.  FNMA outlines this income under B3-3.1-09 (10/24/2016)

The borrower you would want to use this income with the most is that borrower who is not yet retired but is over the age of 59 1/2 and under 70 ½ years old (edit 07/25/2017 any age can use this income as long as borrower has full access to funds regardless of taxes/penalties).  You can use the method below instead of the amount of distributions your borrower is currently taking.  In other words use option A, which is just document the amount of saved assets the borrower is receiving, or option B as outlined below.

Here is the short version of how employment related assets works.

First: Qualify the borrower
1) Borrower must have unrestricted funds in his/her retirement account (NOT checking or savings)
2) Borrower must be over 59 ½ and under 70 ½ years old (no longer required per FNMA any age can use as long as access unrestricted)
3) Must be individually owned (or all owners must be on loan if shared with spouse)

Second: Allowable types of loan transactions

1) 70% LTV
2) Min Credit Score 620
3) Purchase of a primary or second home (or rate/term refi’s) no cash out refi’s!
4) 1-4 unit home

Third: Determine the monthly income

  • Add up all the qualified accounts and reduce gross amount by 30% (40% for borrowers under 59 1/2 to account for penalty)

Example
$500,000 value of retirement account (IRA, 401K, ETC)
($150,000) Reduce by 30% for taxes
$350,000 = Net documented useable assets

  • Determine the monthly income

Example
$350,000 / 360 months  (or applicable term of loan in months)
$972.22 per month qualified income!!

Sometime the key to be becoming a top producer or top quality underwriter is to know the options to approve a good borrower with all available tools.  If you need a handy tool to make sure you get this income right check out www.uber-writer.com, this and 30+ income types are programmed into Uber-Writer to make sure you get the income dead on!