How To Get A Mortgage In Retirement

Gina Pogol
The Mortgage Reports contributor

Get Approved In All Stages Of Retirement

Retirees can get a mortgage with some employment income or none at all.

Retired home buyers often have the means to pay cash for a home, but choose to apply for a mortgage for tax purposes, asset preservation, or other reasons.

Qualifying for a home loan once you have stopped working is different, but not necessarily more difficult.

Special mortgage guidelines address the varied situations of post-career applicants.

Some individuals are fully retired and receive social security benefits or pension income. Others have part-time jobs, and still others remain in their careers on a limited basis.

According to the U.S. Bureau of Labor Statistics, nearly 20 percent of Americans age 65 and older are still employed in some capacity. Fortunately, semi-retired individuals can get mortgage-qualified too.

Various loan programs and strategies help you buy or refinance a home in any stage of retirement.

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Lenders Can Count Your Household Income

Lenders can consider wages from household family members. According to Pew Research, 16 percent of all adults between the ages of 25 and 31 live with their parents.

That totals more than 21 million people still living at home, and many of them pay rent.

Fannie Mae’s HomeReadyTM mortgage program allows income from non-borrowing household members.

For instance, a retired home buyer can use an adult child’s income to qualify if they can document a history of living together.

Additionally, some lenders allow adult children to qualify to buy a home for their aging parents, even if the children don’t plan to live with them. This is commonly known as the Family Opportunity mortgage, and is based on standard conventional loan guidelines published by Fannie Mae.

The lender issues lower owner-occupied interest rates even though the main applicants plan to live elsewhere.

The parents must not be able to qualify on their own. The children must have adequate income, assets, and credit to qualify for the new home and their own housing expenses.

Despite these requirements, this lending type is a realistic option for many retired individuals who want to purchase a home, but don’t have adequate income to do so.

Verify your new rate (Sep 18th, 2020)

Lenders Can “Gross Up” Non-Taxable Income

Non-taxable income goes further than earnings subject to income tax, and lenders recognize this.

Fannie Mae’s guidelines, for example, state that lenders “should give special consideration to regular sources of income that may be nontaxable.”

Lenders are allowed to increase this income for qualifying purposes by 25 percent. For instance, if you receive $1,000 a month in Social Security income, then your mortgage application should list adjusted income of $1,250.

If your tax bracket is higher than 25 percent, lenders are allowed to gross up your non-taxable income by even more.

You must prove that the income is non-taxable. That might involve supplying tax returns and a benefits award letter, insurance policy, account statement, or other writings that indicate the tax status of the income.

Should You Pay Cash For A Home?

People save for retirement so they can pay their bills after they stop working. “Asset depletion” underwriting rules acknowledge that you can effectively pay your bills using funds in an IRA, Keogh, SEP or 401(k).

For the most common programs, the lender simply takes the amount you have saved and divides it by 360 months (30 years) or less for short-term loan terms.

If you have $500,000 saved, for instance, your qualifying income could be bumped up by $1,389 per month.

If your account has stocks, mutual funds or bonds, the value of those assets is reduced by 30 percent. So if the $500,000 in the previous example is in stocks, it’s first dropped to $350,000 and then divided by three hundred sixty months.

You can use retirement account assets for qualifying even if you’ve not reached fifty-nine-and-a-half, the age at which you can freely withdraw funds. Lenders just reduce the amount by the estimated early withdrawal penalty.

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Using Reverse Mortgages To Buy Property

Another option for homebuyers 62 and older is the reverse mortgage. Most retirees use this loan to refinance a home they already own, and eliminate monthly payments.

But home buyers can also use a reverse mortgage.

The nice thing about this option is that your credit and income are barely considered, because you’re not required to make monthly house payments.

The lender does have to determine that you’re willing and able to pay your taxes, homeowners insurance, HOA dues (if applicable) and home maintenance costs.

The most popular reverse mortgage is backed by FHA and is called the Home Equity Conversion Mortgage, or HECM (pronounced “heck em”). You can use it to buy a home with no monthly mortgage payments.

The maximum loan size depends on your age: the older you are, the more of your home’s value you can finance.

A 70-year-old applicant, for example, can buy a $300,000 house with a $172,000 loan if the available interest rate were 4.00 percent.

In other words, a qualified applicant could put 42 percent down and never have another mortgage payment.

The advantage of the HECM is that you put much less into the home than if you were paying cash, allowing you to keep more of your savings in the bank and available to you.

Just because you’re no longer in the workplace doesn’t mean you can’t buy a home and get a mortgage. Talk to an experienced lending professional about the home financing options that might be available to you.

What Are Today’s Rates?

Retirees do not receive higher rates than do employed applicants. Rates are low for homeowners and home buyers of any employment status.

Get a rate quote now, and capitalize on near-record-low rates that may not last. No social security number is required to start, and all quotes come with a mortgage eligibility check.

Verify your new rate (Sep 18th, 2020)