Mortgage Options for Retirees with High Net Worth and Low Income
Retirees seeking a mortgage may face challenges due to their lack of traditional income sources. However, there are strategies available to qualify for a mortgage using alternative sources of income.
Grantor Trusts for Qualifying for Mortgages
One technique involves using a Grantor Trust. By creating a trust, retirees can establish a legal entity that receives and distributes assets, such as investment income.
Features and Benefits of Grantor Trusts:
The grantor (creator of the trust) can specify regular income payments from the trust assets.
These payments can be used as qualifying income for mortgage lenders, even if the grantor does not directly receive the funds.
The trust document should clearly define the payment schedule and funding sources.
Grantor trusts can be revocable, allowing the grantor to maintain control over the trust assets.
Step-by-Step Guide to Creating a Grantor Trust:
1. Draft a Trust Agreement using language that meets lender requirements.
2. List the trust assets and their values in Schedule A.
3. Fund the trust by transferring the assets to the trust account.
4. Provide evidence of the trust’s funding and income, such as balance letters or account statements.
Additional Considerations:
Lenders may require a minimum of 3 years of trust funding to cover the mortgage payments.
To ensure affordability, consider a rule of thumb of dividing total invested or income-producing assets by 800 to determine a safe monthly spending limit for housing.
Seek professional advice from an estate planning attorney to ensure the trust is properly established and meets legal requirements.
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