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Imagine a hypothetical person who is 60 years old with the following assets:

  • 1 million dollars in growth stocks
  • 4 million dollars in low yielding stocks
  • 0.6 million in municipal bonds

About 1 million of the low yielding stocks are inside a Roth IRA.

He wants to buy a home for 1 million dollars. His plan is to sell the municipal bonds and borrow 500K from the bank. However, after he sells his bond off, his ordinary income will be about 40K a year and some of that is inside the Roth IRA.

He plans to collect social security at age 70.

I believe he can afford the home for the following reason. The total return ( dividends + capital gains ) on his portfolio should be about 400K per year assuming an 8% rate of return from the stock market.

Could this person get a mortgage for 500K? Can he afford this home?

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  • Endowment manager here. How we must invest is tightly regulated. For a $5M endowment properly invested (to sustainably hold real value forever even through market ups and downs), I would expect an annual drawdown rate of $200,000 to $350,000 a year. In fact that is what is considered "prudent" under the UPMIFA law, and I must take at least $200k -- or show cause why I'm not. Retirement funds can be taken down a bit faster, since they're not literally forever funds.
    – Harper - Reinstate Monica
    Oct 29, 2022 at 2:59
  • Can he afford? Clearly, yes. Can he get a loan? Depends on the bank policies and the underwriting process. The person would have to talk to a mortgage adviser.
    – littleadv
    Oct 29, 2022 at 4:36

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Yes, this person could get a mortgage for 500K. They would have an income of 400K from their portfolio, which would easily cover the mortgage payments. Additionally, they would have social security income coming in starting at age 70, which would further increase their ability to afford the home.

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  • 2
    400k is not income, it's "total return including capital gains".
    – littleadv
    Oct 29, 2022 at 6:43
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    Lenders don't care about any technical difference between "income" and "capital gains". They want to know how much money you receive. That's what they mean by "income" and probably what the answer means.
    – DJClayworth
    Oct 29, 2022 at 15:46

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