Tips for Obtaining a Mortgage During Retirement - You Need a Strategy (2024)
You’ve been working all of your life and living within your budget. You’ve never had trouble qualifying for a mortgage because your credit rating was high, your debt-to-income ratio was good, and you bought a house that you could afford. Now, you’re fully retired and want to sell the old family home that still has a mortgage. Your plan is to downsize into a modern, single-level near your children that is in a more expensive neighborhood than the one you’re currently in. You need to take out a new mortgage but will your qualify?
Or maybe you just want to refinance your existing mortgage.
Under the Equal Credit Opportunity Act, lenders cannot discriminate against borrowers based on age. Retired borrowers, like working borrowers, simply need to show that they have good credit, not too much debt, and enough ongoing income to repay the mortgage. Two common obstacles hindering some retirees are today’s higher lender qualifications and what lenders consider to be acceptable income.
You may even have a substantial amount of assets in a 401k or IRA retirement account but that isn’t necessarily income if you are allowing it to continue growing tax-deferred in your 401k or IRA. Qualification and income requirements depend on the lender and the type of mortgage that you’re seeking. You may need to do some shopping around. Fannie Mae and Freddie Mac backed loans come with requirements that lenders must follow. But private mortgage lenders set their own standards and can even waive some if they believe you are a good risk for other reasons.
Fannie Mae, Freddie Mac, and some private lenders do have programs designed to meet the different income and asset sources of retirees but not all loan offers are fully up to speed on how to handle assets that don’t show up on W-2 or 1040 IRS forms. The place to start is by asking the loan officer if he or she has experience qualifying loans based on retirement income sources rather than only on steady monthly income.
These programs typically take two formats. One treats ongoing distributions from IRAs, 401k accounts, and similar funds as income that are acceptable for home-mortgage applications. That’s all you need as long as the withdrawals plus other income are adequate to meet the debt-to-income requirement and are likely to continue for at least the next three years. The second option is designed for people who have retirement funds that haven't yet been tapped. Loan officers can use retirement-account balances as the basis for what functions essentially as credited income — money that is or will be available to the borrower to supplement regular monthly income when needed to make payments on the loan. Often this is only valued at 70% of its current book value because of the risk that the value will fluctuate.
You may also be able to include your annuity, survivor or spousal benefits, and retirement account income as long as you can prove it will continue for at least 3 years. Another option you can consider is creating or increasing distributions from your 401k or IRA to generate more income. You might not need the income from those distributions, but you have to show it at least temporarily on your 1099 or other IRS form.
If you don’t need the income, you can invest it somewhere other than your 401k/IRA and/or possibly discontinue the scheduled distribution after establishing that you can make the mortgage payments without it. Also, under rollover rules applying to retirement accounts, you can put the cash back into your 401k/IRA within 60 days without the distributions being taxable. However, beyond 60 days, the withdrawals will become locked in, and you’ll have to declare the money as income.
Before starting unwanted distributions, you should first ask about potentially qualifying for a mortgage based on assets in your 401k or IRA. This is the formula that often values the assets at 70% of the current book value. Not all lenders (especially private lenders) use the same formula to reduce the asset value. Some are more interested in determining if the value will stretch long enough to cover mortgage payments for the life of the loan. They might also want to know how liquid the assets are in the event you need to begin making regular withdrawals.
One last option doesn’t involve a mortgage at all. You might be able to “pledge assets.” What this means is that you apply for a loan against your brokerage account (up to a limit) and purchase the home that way.
The bottom line is that you need to be aware that you have options when qualifying for a mortgage during retirement. If your assets are tied up in retirement/investment funds, and you're seeking a mortgage based on your post-retirement income, ask the loan officers about the Fannie and Freddie options as well as alternatives offered by some private lenders. If the loan officer says nothing like that exists or they aren’t familiar with them, you need to look for a more-qualified loan officer.
Please comment with your thoughts about post-retirement mortgages.Also, our weekly Ask Brian column welcomes questions from readers of all experience levels with residential real estate. Please email your questions, inquiries, or article ideas to [emailprotected].
Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years with articles listed on Yahoo Finance, Benzinga, and uRBN. Brian is a regular contributor at Realty Biz News
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It's possible to get a mortgage after you retire. A lot of the qualifications will be the same, including good credit, a steady income and a low debt-to-income ratio. Some qualification processes will look different, though. The biggest difference will be how you prove your income.
It's possible to get a mortgage after you retire. A lot of the qualifications will be the same, including good credit, a steady income and a low debt-to-income ratio. Some qualification processes will look different, though. The biggest difference will be how you prove your income.
And if you're looking to buy a house, you might wonder if you can still land a 30-year mortgage when your age is north of 60. The short answer: absolutely! Luckily, whether you're 25 or 70, lenders look only at certain numbers when reviewing a mortgage application.
Most lenders consider pension, Social Security and investment income as your regular income. You may also be able to include your annuity, survivor or spousal benefits and retirement account income as long as you can prove it'll continue for at least 3 years. Your assets can contribute to your ability to get a loan.
To calculate how much you can afford, the lender will consider your income, debt and expenses, amount of savings available and credit profile. Most lenders ask for proof of income over the past two years, including pension and Social Security payments as well as any investment dividends or earned interest.
Yes, seniors on Social Security can get a mortgage. Lenders often consider Social Security as a stable form of income. However, eligibility will also depend on other factors like credit score, other sources of income, and existing debts.
It's possible to get a mortgage with Social Security as your only income, depending on how high your benefits and your loan payments are. But like any borrower with a low income, you might not qualify for a large mortgage, and you may have to put down a sizable down payment to get approved.
Yes, your monthly payments will be higher, but your interest rate will be lower. You can also ask your lender about senior citizen mortgage assistance programs that are available in your state. Be sure to consider your spouse or partner when deciding to get a mortgage.
The HECM is the FHA's reverse mortgage program that enables you to withdraw a portion of your home's equity to use for home maintenance, repairs, or general living expenses. HECM borrowers may reside in their homes indefinitely as long as property taxes and homeowner's insurance are kept current.
A reverse mortgage is a loan available to senior homeowners (62 years and older) that allows them to convert part of the equity in their homes into payments from lenders. Seniors may use reverse mortgages to help supplement their Social Security or other retirement income.
When you apply for a home loan with regular hourly or salary income, lenders use your gross income (before taxes and deductions) to determine whether you qualify. However, retirement or Social Security income is often non-taxable. Therefore, lenders can “gross up” your income by an additional 25%.
In 2022, researchers found that just over 40 percent of homeowners older than 64 had a mortgage, a jump from roughly 25 percent a generation ago. Ultralow mortgage rates were a big driver of the increase, said Jennifer Molinsky, project director of the center's housing and aging society program.
A pension letter or pension distribution statement showing regular pension payments. A copy of your most recent tax returns. Statements showing current assets of bank accounts, IRAs, and 401(k)s may also be accepted by some apartment owners.
Social Security offers a monthly benefit check to many kinds of recipients. As of May 2024, the average check is $1,778.24, according to the Social Security Administration – but that amount can differ drastically depending on the type of recipient. In fact, retirees typically make more than the overall average.
When applying for a mortgage as a retiree, there are a few extra things to look out for. You might have less time to pay the mortgage back, depending on the age you retired. This can make monthly repayments more expensive. Some lenders have set an age limit for new mortgage applications at 65 to 70 years old.
There are good reasons to own a home after retiring, but there are also plenty of arguments for renting. Renting can be less expensive as you skip the burdens of property taxes and maintenance costs. However, owning can be less stressful since you don't have to worry about a landlord raising your rent.
In 2022, researchers found that just over 40 percent of homeowners older than 64 had a mortgage, a jump from roughly 25 percent a generation ago. Ultralow mortgage rates were a big driver of the increase, said Jennifer Molinsky, project director of the center's housing and aging society program.
Social Security benefits are one source of income that can help you qualify for a personal loan if you need one. The proceeds from such a loan won't affect your retirement benefits, but they can have an impact on your benefits if you're receiving SSI. Social Security Administration. "Spotlight on Loans — 2023 Edition."
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