Dear MarketWatch,

I am an “elder millennial” living just outside the San Francisco Bay area. I don’t have any kids, nor do I plan to. I would love to purchase a house in this area but have a lot of competition from high-paid tech workers in Silicon Valley living in two-income households wherein each of them are making low-to-mid six figures. It’s driving the average sale price of a house in my city to over $1 million.

I only make $5,000 to $6,000 per month on a consistent basis, but I do have occasional, massive windfalls. I currently have about $2 million in liquid investments and an 815 credit score, but due to my low consistent income, I am still unable to qualify for any sort of loan required to purchase a home here and would likely have to pay cash for any home I purchase.

I really don’t want to cash out such a large portion of my nest egg just to buy a place to live that wouldn’t be anything close to my dream home, but I feel like every time I’ve waited for the housing market to cool off it only continues to increase. Also, I feel like I should have at least $5 million before spending an entire million at one time as I would very much like to “retire” early and it would set me back to take such a large chunk out of my portfolio.

What should I do? Wait? Buy something before the market gets even worse? Buy land for $300,000 and build something on it? Or just suck it up and move out of this insane place where a million bucks gets you a home with two bedrooms and 1.5 bathrooms?


No Home Millionaire

The Big Move’ is a MarketWatch column looking at the ins and outs of real estate, from navigating the search for a new home to applying for a mortgage.

Do you have a question about buying or selling a home? Do you want to know where your next move should be? Email Jacob Passy at [email protected].

Dear Millionaire,

If it gives you any comfort, take heart in knowing that you’re far from alone when it comes to situations like yours. But usually this is a problem we see later in life, and not when we’re creeping up on our 40s.

The issue stems from regulations implemented over the last decade to protect borrowers from risky loans that have had some unintended consequences.

“The new rules are written to take care of people who don’t have that kind of money,” said Brian Koss, executive vice president of Mortgage Network, a mortgage banker based in Danvers, Mass. Those new lending rules stem from legislation that went into effect following the Great Recession and subprime-mortgage crisis.

Lawmakers wanted mortgage lenders to take a closer look at applicants’ finances to make sure they had the ability to repay any loans they would receive. A side effect of this, though, was that it suddenly became more difficult to qualify for a mortgage if you had lower monthly income but a large amount of assets to rely on.

“We have this happen with a lot of people who are older — who are in their 60s and just retired,” Koss said. “They don’t have a history of income but they have like $3 million to $4 million in assets. So they sell their home in Kansas and move to Hilton Head, and all of a sudden they don’t qualify in a traditional sense.”

According to Koss, there are workarounds in situations like these that you should consider. First and foremost, look for so-called portfolio lenders — these are lenders who don’t sell the servicing rights for their loans and keep the loans on their books (a.k.a their portfolio.) Because they plan to keep the loans in their portfolio, they aren’t intending for them to be sold to Fannie Mae

or Freddie Mac
Consequently, these lenders don’t need to abide by the same, strict rules for loans sold to those mortgage giants, giving them more leeway to be flexible in situations like yours.

These will tend to be smaller or mid-size lenders — small local banks or credit unions are good examples of the type of financial institution that may offer such flexibility, rather than big banks or larger lenders who advertise during the Super Bowl. In particular, ask around to see if anyone does asset depletion loans. With these mortgages, they will look at your liquid investments essentially as a source of income you could draw on to make your monthly payments over the 30-year term of the loan. That doesn’t mean you’d actually have to use that money, but it improves your chances of qualifying.

‘The new rules are written to take care of people who don’t have that kind of money.’

— Brian Koss, executive vice president of Mortgage Network

Keep in mind, smaller lenders who don’t work with Fannie Mae and Freddie Mac might charge higher interest rates. And a loan like the one I just described could be too expensive for you, given your monthly income.

Another challenge you might face is that lenders are still being super cautious in light of the pandemic. After the onset of COVID-19 and the resulting economic crisis, lenders seriously tightened their purse strings to avoid taking on borrowers who might ultimately go into foreclosure. Data from the Mortgage Bankers Association shows that mortgage credit availability fell to the lowest level since 2014 last year following the onset of the pandemic, and it has essentially stayed there. In other words, banks are taking the same approach now that they did as the economy was coming out of the Great Recession.

If you ultimately can’t get a mortgage, it’s time for some soul-searching. What are your goals, and where does homeownership fit into them? You say you want to retire early — what do you qualify as early? At age 45, or at 60? Depending on how soon you want to retire, you won’t have much runway to play with to recoup any money you drain from your investments to put into a home.

Financial adviser Jordan Benold argues that you shouldn’t necessarily view a home as an investment, and other financial experts have told me the same in the past. “Sure, it appreciates, and you want it to, but it will not pay your bills in retirement,” Benold said. Everyone needs a roof over their heads, after all; it’s important to weigh whether housing is a money-making venture or a necessity.

Maybe homeownership is truly that important to you though — but is it important enough to drain half of your savings in one fell swoop? If it really is a goal you want to achieve, leaving the Bay Area as many others have done before you may be your best bet. Just make sure that, if you do move, relocating won’t hurt your ability to move forward in your career. Because even if staying in the Bay Area means you need to be a renter, it could be worth it in the long run.

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