Self financing/portfolio loans

MTH, Portfolio loans are available typically via brokerage relationship with a broker. In order for them to loan, they need to hold the collateral in a margin account in their name. Unless Vanguard makes this type of loans, you can’t borrow from a lender against assets held at Vanguard.

My best guess will be coops will hate it as you are subject to margin calls.

Thanks, @300_mercer - I'll have to look into it with Vanguard but it doesn't look like something that would work anyway.

You can hold those assets in a Vanguard brokerage accounts with margin loans, but like most retail outlets their rates are usurious. You can hold (or transfer) Vanguard funds in an Interactive Brokers account. They provide very competitive margin loans (Fed funds plus 0.5% to 1.5%, depending on size). I wouldn’t recommend these routes for a variety of reasons, but those are possibilities.

Why not just either sell your assets or else get a mortgage? (I can see various fine answers to this question, just curious about your motivation.)

Thanks, @inonada - My hare-brained idea is to buy then move, look for work once I have relocated. My current DTI is OK for a place in the price range I'm looking for but the rates I were quoted by one mortgage broker were between 8 and 9% range because I am living overseas.

Why would you advise against using Interactive Brokers or similar?

I could just sell assets - that would be the easiest approach - but cap gains add 15% +/- to the cost

For a mortgage and likely for a coop approval, you need to find a job here first.

Mortgage Broker here.
If you a citizen living overseas, that shouldn’t be a problem obtaining financing, or be the reason for such a high rate.
That said Fannie Mae has asset depletion loans at very reasonable rates, haven’t done one lately so I would have to lookup the guidelines to see if anything has changed.

Vanguard margin rates suck, like most brokerages. 7-10%+. There I’d be less worried about the risk of Vanguard going belly-up, but borrowing at those rates is totally unattractive.

IB margin rates are good — 3.x%. But if you have more than $500K there, I’d be worried about the risk of not being made whole. Not a super-high risk, but a risk nevertheless.

A higher risk in both cases is margin call. If the value of the portfolio drops below the margin threshold, they will liquidate enough of your portfolio to cover the shortfall. Most people don’t like it when that happens. If you’re borrowing 10% of a broad-based portfolio value, margin call is a relatively unlikely risk. If you’re borrowing 50%, its likelihood is appreciable. (IB has a thing called portfolio margin that allows margin amounts below 50%, FYI.)

Compared to a 4.x% ARM, margin loans seem not worth the added uncertainty IMO. But if you’re looking at 8.x%, it’s a different situation I suppose.

When I was last looking to buy a place (which I wanted to do before selling my current place) one mortgage broker told me they'd lend against my non-real estate assets (checking, brokerage funds, retirements funds, etc.) But the margin of safety they wanted was pretty deep -- essentially they wanted to see ~ $1.4mm in assets for every ~$500K they would lend -- so I didn't pursue it.

high-end co-op boards will be okay with this asset shuffling, and easy co-op boards will be okay. Mainstream co-op boards will balk, and IA that not having a job will probably make this a nonstarter.

ali r.
{upstairs realty}

@streetsmart - Yes, I'm a US cit. Another mortgage broker told me high interest rates were bc I'd be treated like a non citizen.

I've heard of asset depletion loans but don't know much about them. Looking online, I see a lot of .com websites. Most of them say they calculate income based on your total assets minus the downpayment divided by 360. The resulting figure won't do. Right now am able to put aside 4-6 K per month. My income isn't high but my living expenses are low. I'm lost.

@front_porch - interesting. Maybe an ARM is preferable. Those always spooked me tbh but I guess there are ways to fix interest rates later through refinance.

What fraction of your total investment assets are you seeking to borrow?

Margin rates are different than Securities-Based Line of Credit rates.

https://www.reddit.com/r/fidelityinvestments/comments/t87q72/securitiesbased_line_of_credit_sbloc_at_fidelity/

This is a reasonable overview of an asset depletion mortgage, and should give you enough info to do a back of the envelope calculation as to what you might be able to afford:

https://www.thebalance.com/what-is-an-asset-depletion-mortgage-5425827

Effectively, the loans are looking to imply a monthly income based on your portfolio assets, which income would be used to pay a mortgage, maintenance, & living expenses, which is why these are typically for retired people, and those with significant assets. Note in the 'cons' mentioned, the potential limitations on being able to count certain retirement funds if you're not actually retired.

Freddie will allow a borrower to use 70% of the balance of an investment account, and by dividing that amount by 240 months come to an implied qualifying monthly income. The maximum loan is 80% of the property value, and the max is subject to other qualifying criteria. A co-op's qualifying criteria may be stricter.

@mth if you need a couple of bankers to speak with, shoot me an email no strings attached. I'll send you a couple of very smart people we could probably answer all your questions and perhaps may have a product/path that suits you. You can find me online.

Keith Burkhardt
TBG

To avoid beating around the bush, how much assets are we talking about? For a buyer with no income, I think a coop board would want to see 1.5x - 2.0x the purchase price in liquid assets. E.g. $2.25 - 3.0 million in a brokerage account for a $1.5 million purchase. Others may know the ratios better and I think this can vary wildly depending on the “class” of coop you ate looking at.

Aaron2, and everyone else, the one time I pulled this cr8p with a co-op board (specifically, arguing that a client's portfolio was big enough that is should allow us to impute income and use for purchase) the portfolio was held by a classy-sounding wealth manager (not Bessemer Trust, but just to convey what's going on, an institution at that level.)

Even if a lender is going to go along with "hey I've got $5 million at Vanguard, most of which is nonretirement, and you know what, I'm soon going to be able to get to the retirement part, so let's pretend I'm going to suddenly optimize the portfolio for income, so let's further pretend my income is $X" your run of the mill co-op board probably will not.

It doesn't mean that every building won't, but it's going to take some very careful shopping.

ali r.

I don't mean to sound flippant about your situation, but if your plan is to move back to NYC and start working here I would do that first before applying to purchase a Coop.

@MTH
Fannie Mae has a desktop underwriter program known as DU. This is the first procedure that lenders use to qualify a borrower even for a jumbo loan although for a jumbo loan different results of DU are used as opposed for a conventional loan. Mortgage brokers can run this program also.
Freddie Mac has a similar program also.
Both programs have adjustable or fixed rate options.
Feel free to email me. My bank contacts can tell me if a loan will work, no charge to you.
The other asset depletion products are called non QM, or non qualifying mortgages. These products have a much higher interest rate, not for you. These type loans are for people usually self employed who have a lot of equity in their properties but cannot access it through traditional means.
Ellen Silverman
Licensed Mortgage Broker
NMLS#60631
EllenSilverman@esfundingcompany.com

@30yrs - That would be preferable and I am persuing finding work. That said, housing is always going to be my biggest expense and a person could go through a bucketload of cash renting while looking for a place. Also: I doubt I'll be able to invest (whether in home equity or in Vanguard) as much here as I am able to do living overseas.

As of today, the most expensive place I'm looking at is 57% of today's value of my assets. The market is volatile of course. But the asking price seems high for what it is so imagine they'd come down and if they didn't, I can hold off. There are also appealing places asking closer to 40% of today's valuation of my assets.