your borrowing power disappears
Your borrowing power disappears the day your paycheck does, and that hits anyone planning to retire who might still want a mortgage, a refinance, or a home equity line.
A bank doesn't qualify you on the size of your savings. It qualifies you on the income landing in your account every month. Call it the income test.
A million dollars sitting in a brokerage account doesn't help you pass it.
So you can be debt-free with a fully funded retirement account and still get turned down for a loan you could pay off in cash that same afternoon.
At 64, earning $95,000, a $100,000 home equity line is a routine approval.
Same house, same equity, two years later at 66 on $45,000 of Social Security and withdrawals, and that line gets cut down or denied.
Nothing about your finances got worse. The paperwork just stopped showing income.
I lend on private mortgage notes myself, so I've seen it from that side of the table: income is the first thing anyone looks at, long before the assets.
So open the line of credit before your last day of work, while the income test is still easy to pass.
You never have to draw on it. A home equity line can sit unused for years and still be there the month you need a new roof or a surprise medical bill.
There is a workaround after the fact. Some lenders will count a retirement account as income if you first set up steady monthly withdrawals from it. Fewer lenders offer that, the paperwork is heavier, and the amount you qualify for is usually smaller.
Handle it while you're still working and you skip all of that.
As promised, income over wealth in under a minute.
- Dan
A bank doesn't qualify you on the size of your savings. It qualifies you on the income landing in your account every month. Call it the income test.
A million dollars sitting in a brokerage account doesn't help you pass it.
So you can be debt-free with a fully funded retirement account and still get turned down for a loan you could pay off in cash that same afternoon.
At 64, earning $95,000, a $100,000 home equity line is a routine approval.
Same house, same equity, two years later at 66 on $45,000 of Social Security and withdrawals, and that line gets cut down or denied.
Nothing about your finances got worse. The paperwork just stopped showing income.
I lend on private mortgage notes myself, so I've seen it from that side of the table: income is the first thing anyone looks at, long before the assets.
So open the line of credit before your last day of work, while the income test is still easy to pass.
You never have to draw on it. A home equity line can sit unused for years and still be there the month you need a new roof or a surprise medical bill.
There is a workaround after the fact. Some lenders will count a retirement account as income if you first set up steady monthly withdrawals from it. Fewer lenders offer that, the paperwork is heavier, and the amount you qualify for is usually smaller.
Handle it while you're still working and you skip all of that.
As promised, income over wealth in under a minute.
- Dan
