How does a lender use your IRA balance in the calculation to qualify for a home mortgage when you are retired?
Hi David - I assume you're currently taking distributions? If so you will have a distribution letter from your IRA provider that states you're taking $XX a month in 2014. The underwriter will then project how many months that balance will last at that rate of attrition. They will NOT factor in any appreciation based on the investment held by the IRA. As long as your account has enough to fund 36 months, you're good. Sort of...
IRA accounts are also commonly used to satisfy the reserve requirements for a home loan. Conforming loans generally only require 2 months PITI (principal, interest, taxes, insurance.) Jumbo lenders usually want 6 mos and depending on the loan amount and purpose is could be 12 or even 24. If you have other financial accounts that satisfy the reserves, then the IRA income stands on its own. If not, then the UW will first deduct the reserves requirement from the balance, then calculate the attrition based on the remainder.
I hope that answered your question. Good luck! | 09.19.14 @ 22:56
I think what you're asking is, how the underwriter came up with the number. Generally, underwriting rules call for a maximum of 70% of the account's actual balance to be credited towards reserves. If you have $100,000.00 in your retirement account, you will be credited for $70,000 in reserves, due to the volatility and liquidity issues of the market. Good Luck! | 06.23.15 @ 15:59