Episode 73, Part 2: Downsizing & What That Means for Retirees
John Schutze of Supreme Lending & Juli Williams of Keller Williams discuss how to downsize to a smaller home in Austin, as well as how retired folks can qualify for a loan when trying to downsize.
"I'm in that stage where my kids are now out of the house, so I'm an empty-nester, and that can feel like you've got too much house. Or downsizing can be a great way to lower your mortgage payment so you can have less debt. There's a lot of reasons to downsize," Juli explains.
"You can still have a guest room so people can come and stay, but that doesn't mean you have to keep the big house with a lot of maintenance and cleaning," she adds.
"The reality is that a lot of folks don't have their house paid off in retirement like they maybe thought they would," John says. "I see that a lot where you have a home that's maybe worth 400k, but you still have a 200k mortgage on it, so you have 200k in equity so if you sold that house and put it down on a 300k house, then now you only have a 100k mortgage."
"It's downsizing the mortgage, not just the maintenance and the big house," he continues.
"Let's assume you're retired - mortgages these days - after the mortgage meltdown, a lot of attention was paid on how did all these people get mortgages when they didn't make enough money to make the payment? We now have this thing called Ability To Repay, or ATR, which makes us as a lender have to prove that the borrower has the ability to repay the mortgage. This means we have to look at where the borrower's income is going to come on a monthly basis.
"So maybe you have some Social Security, or a small pension, or you have savings," John says. "But if it's not a regular monthly payment, it's like "I've got 300k in the bank and could pay cash on this house - why is it a problem to qualify?"
"Just because the money is in the bank, we can't use it as income in some cases. Now, we do have the ability to use retirement funds and use Fannie Mae & FHA to allow you to use a stream of income from a retirement account, but you have to set up a monthly payment. So if you need 3k every month in income to qualify for your mortgage - you need to set that up with your investment company and some lenders require that you show that you have received that payment for 2 or 3 or 4 months. You do have to show that the income will last at least three years," John explains.
"Sometimes it might be good before you retire to make some of those decisions regarding your home and talk to a lender regarding your plans so you're not surprised and feel stuck in your current home because you don't think you can buy the next one."
If you have questions about this topic, give John a call at (512) 524-8310 or email him at email@example.com.
If you're thinking about downsizing and want to start the process, call Juli Williams at 512-470-3298.