Complex financial maneuvering enables ‘next stage’ home purchase

Loan officer: John Holmgren, Holmgren & Associates. Property: Single-family home in Montclair.

Purchase price: $1.4 million. Loan amount: $1.05 million. Loan type: 7/1 Adjustable Rate Mortgage.

Rate: 4.875 percent with no points.

Backstory: My clients had lived for the last 19 years in Clayton, close to their jobs in Contra Costa County, but wanted to return to Oakland now that they were retired. Their agent, Barbara Hardacre with Compass in Oakland, found the perfect home for them. The challenge was to be able to buy the new home now when the plan was to sell their current in the spring market.

The primary issue was that their liquid assets allowed them to put 25 percent down on the new home, but they would have to qualify to borrow $1.050 million on their reduced retirement income while also carrying the housing expense on their prior home. They had good retirement savings, but were not yet receiving distributions from these assets because they did not need the income and were not required to do so because they had not reached the mandatory distribution age of 70.

Normally to qualify in this situation they would have had to show income from retirement distributions, as well as rental income from their current residence, to offset the carrying cost of that home. Instead, I used a program in which I was able to impute income from their retirement accounts as well as rental income from their current home. This allowed them to qualify without increasing their taxable income and without forcing them into the uncomfortable position of representing that they were going to rent their current home, when that was not going to be the case.

This plan enabled them to move into their new home now, and then to sell their prior home in the spring, using the sale proceeds to reduce their new home balance and payment, and to replenish the funds they used for their down payment.