In our last blog, we compared and contrasted the situations of two single retirees with that of a retired couple. We explored how their incomes and assets affected their ability to buy homes and the mortgage implications for each. For this month’s solutions roadmap, we outline the different challenges and steps that can be taken depending on whether you’re cash, asset, equity, and income rich or poor or a combination thereof!
- Asset/cash or equity rich but income poor
Even if your financial situation is looking strong from the perspective of cash, investments, and other assets, there are still challenges involved in qualifying for a mortgage under the standard rules. The reason for this is income. Someone with a lower income living on pension (CPP), retirement savings, or their RRSPs doesn’t qualify for much of a mortgage budget in most markets because they are income poor. In these types of cases, you’ll likely have to prepare for a down payment in the range of 35-50%.
You’ll also have to meet a net worth threshold that will be established by the bank. If you’re both cash and asset rich, this shouldn’t be an issue but not all lenders subscribe to net-worth lending. Going this route will also impact your ability to borrow and take on future debt. A common misconception here is that if you’ve had a long relationship with a lender like a bank, your strong history will speak for you but this fact probably won’t matter as much as you’d like it to.
Cases like these often involve some creativity on our part and we’ll investigate a multitude of different lenders to try and develop a solution for your unique situation. The fact that we have access to more than 30 lenders of different types (from A lenders to alternative and private/equity lenders) allows us to custom tailor your solution to your parameters!
- Income healthy andequity rich but cash poor
In this case, the challenge is figuring out how much of your income actually qualifies and how much down payment you have available. For a standard purchase, having a good and reliable income (e.g. government pension or a higher-level private/unionized pension) will definitely help you to buy what you want and with fewer hoops to jump through. Equity is also great but it’s usually locked up in your home.
Oftentimes, we see people in this type of situation refinancing for a home equity line of credit or private equity loan and using a sell-to-buy purchase strategy. The fact that there’s less cash available for a down payment means you will have to rely on the income and equity aspects of your finances in order for your deal to succeed. We also have seen clients have success with blanket mortgages.
We can look at selling first and then doing a bridge loan for your next home’s down payment. Again, having the flexibility and access to all the different lenders and types helps us navigate your options and make sure we’re providing you the very best solution for your situation.
- Equity rich but cash or asset poor
If you fall into this category, you are the norm for retired buyers. The challenge here is that the majority of your assets or net worth is locked away in your home, which will hopefully sell for a higher price (this is market-dependent but historically true). That said, you might need to leverage this aspect in order to buy at a high price if the market is hot. One option for you is a co-signer. Having a co-signer not only helps massage the deal in the right direction but can also be a great step towards estate planning (think adding your children to your title and avoiding excessive tax).
A private, interest-only mortgage might also work for you. These mortgages are typically quite expensive (relative to what market rates can be) and should not be considered for a long-term solution but can help close things in the immediate term. Another option, that is highly overlooked, is a reverse mortgage. A reverse mortgage provides you with a loan that is secured with a residential property, but this setup allows you to access the value of the property and typically does not require monthly mortgage payments and requires little income verification.
Pro tip: Reverse mortgage is a very age and equity specific product but could be your magic ticket if you meet the criteria. Even if you fall into one of the first two groups of retired buyers, this could still be advantageous for you in several different ways (ie. investment, retirement strategy, and retirement savings).
As you can see, there are multiple variables that make up a retired or senior buyer’s situation and multiple paths forward for each of those cases. Having the flexibility of mortgages and loans from a multitude of lenders is what helps us find the right deal for you so you can enjoy your golden years in the home you desire.
Contact the Kyle Miller Mortgage Agent team so we can discuss what your mortgage solution can look like. Every situation is different and we can help navigate the lending process by helping you understand your best options!
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