Funding options for retiree with very substantial assets

[Chris Talley]

A friend of mine recently retired with a very, very substantial amount of money in his retirement accounts but is now having issues getting funding for a personal residence.
He currently lives in CA, and is in the process of moving out-of-state to TN. He's under contract on a property for 1.7MM, an amount which he could easily cover with cash from his retirement account. However, drawing a lump sum of that size from his retirement account is highly inefficient from a tax perspective, especially while he's still a CA resident. He'd obviously prefer to fund the purchase with debt, either with a mortgage or a line of credit secured by cash in his retirement account. But big banks are turning him down simply on the grounds of income requirements, given that he very recently retired. The tax situation means that any reasonable interest rate is still a significant win for him. Any ideas on how to help him find a lender that would handle this type of unusual circumstance? Seems like this should be a very low-risk loan for the lenders, given that he can fully collateralize the loan with cash in his retirement accounts.

[Chris Mason]

Originally posted by @Chris Talley:

@Chris Mason He's got an application underway with Chase right now, but I believe that Wells and BofA turned him down, because he has not had consistent income from his retirement account previously. The other big wrinkle here that I left out to avoid distracting from the main question: pretty much all of his retirement balance was earned in 2020. He had a crypto investment go from hundreds of thousands to over ten million. He's sold a huge portion of that position in his tax-deferred account and now has it sitting in cash in his retirement account. Perhaps lenders have been unwilling to project future income from the retirement account due to the lack of income history and the volatility of the holdings (granted he's now much more diversified)? The answer he's been getting from the big banks has been "No income + new retiree = no loan"

 Tell him to initiate regular recurring retirement distributions and call back in a couple months. It's not self employment, so you don't need 2 years of consistent history. But "I'm gonna distribute $X to myself each month," without actually doing it, is of course no different than "I'm gonna become a pro baseball player," without actually playing baseball. And stop calling big banks for mortgages, while he's at it. :P

When picking the amount for the retirement distributions, reminder that for a loan of this size they're looking for a DTI in the mid 30s to low 40s. Folks like this often think "whelp the mortgage payment is going to be $10,000/mo, so I'll distribute $10,500/mo and call it good!" -- but that translates into about a 95% DTI (if there's a car payment, it could be >100% DTI).

Unemployed millionaire mortgages, once you've done a couple, are actually easier than W2 employee mortgages. They just aren't common enough that your big bank or call center order taker has experience with them. Just like you described, there's an uptick in them especially here in California (crypto, gamestop, and so on), and FYI for folks not of retirement age there are solutions there too.