Mortgage and refinance loans for seniors on Social Security

Craig Berry
Craig Berry
The Mortgage Reports Contributor
July 2, 2021 - 10 min read

More seniors are taking out new home loans

Many retirees no longer see paying off their home as part of their goals.

More and more Americans are taking advantage of the low interest rates and tax breaks that come with having a mortgage.

If you’re sizing down, you might get a mortgage instead of buying the new place with cash. Or you might refinance for lower payments rather than paying off a chunk of your balance.

Luckily, there are plenty of home loan options for seniors today, even if you’re on Social Security income. Here’s what to know.


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Can you get a 30-year home loan as a senior?

First, if you have the means, no age is too old to buy or refinance a house. The Equal Credit Opportunity Act prohibits lenders from blocking or discouraging anyone from a mortgage based on age.

If we’re basing eligibility on age alone, a 36–year–old and a 66–year old have the same chances of qualifying for a mortgage loan.

The qualifying criteria remain the same: income, assets, debts, and credit.

However, it can be tougher to meet those criteria in retirement – especially when it comes to income.

Seniors should expect stricter scrutiny when applying for a mortgage loan. You’ll likely have to provide extra documentation supporting your various income sources (retirement accounts, Social Security, pension, and so on).

There may be more hoops to jump through. But if you have the cash to make payments, you should be able to qualify for a new home loan or refinance your current home.

Mortgages for seniors on Social Security

Social Security income for retirement or long–term disability can typically be used to help qualify for a mortgage loan.

That means you can likely buy a house or refinance based on Social Security income, as long as you’re currently receiving it.

SSI should be counted along with retirement funds and other liquid assets to calculate the borrower’s total qualifying “income.”

Since SSI is typically non–taxable, it can also be “grossed up.” That means the lender can increase the qualifying amount by 10 to 25 percent and help you qualify for a larger monthly mortgage payment.

For a lender to count Social Security income toward your mortgage, it will need to be documented via an SSA Award letter or proof of current receipt.

If the borrower is drawing Social Security income from another person’s work record, they’ll need to provide the SSA Award letter and proof of current receipt, as well as verification that the income will continue for at least 3 years.

Mortgage loan options for seniors

As mentioned above, seniors can easily overcome the income hurdle for mortgage qualifying if they have sufficient assets, retirement savings, or investment accounts.

In fact, there are programs specifically designed to help seniors and retirees finance their homes.

1. Asset depletion loans

An asset depletion loan is a type of mortgage designed for home buying and refinancing without regular income.

Technically, this is the same as a traditional mortgage. The only difference is the way a mortgage lender calculates your qualifying income.

Asset depletion mortgages allow borrowers to qualify for a home loan based on their liquid assets rather than a continuing income source.

In this case, the sum of the borrower’s assets is divided into a monthly “income,” which is used to determine whether they can afford mortgage repayment.

For instance, say you have $1 million in savings. The lender will divide this amount by 360 (the number of months in most fixed–rate mortgages) to arrive at an ‘income’ of about $2,700 per month. This number is used as your monthly cash flow for mortgage qualifying.

You need a significant amount in savings to qualify.

Only certain types of funds can be counted toward your qualifying “income” for an asset depletion loan. These typically include:

  • Checking and savings accounts
  • Money market accounts
  • Certificates of deposit
  • Investments such as stocks, bonds, and mutual funds
  • 401(k) and IRA retirement accounts

Regardless of whether the income has a defined expiration date, lenders require you to document the regular and continued receipt of their qualifying income.

This is typically done using one or more of the following:

  • Letters from the organizations providing the income
  • Copies of retirement award letters
  • Copies of signed federal income tax returns
  • 1099 forms
  • Proof of current receipt via bank statement deposits

For retirees who aren’t earning income, an asset depletion loan may be a good way to qualify for a new home loan or refinance.

2. Fannie Mae senior home buying program

Both Fannie Mae and Freddie Mac have policies that allow eligible retirement assets to be used to qualify under certain conditions.

Fannie Mae lets lenders use a borrower’s retirement assets to help them qualify for a mortgage.

If the borrower is already using a 401(k) or other retirement accounts for retirement income, the borrower must demonstrate that the income received from that asset is going to continue for at least three years.

If the borrower is not already using the asset, the lender can compute the income stream that asset could offer.

3. Freddie Mac senior home buying program

Similarly, Freddie Mac changed its lending guidelines to make it easier for borrowers to qualify for a mortgage when they have limited incomes but substantial assets.

The rule allows lenders to consider IRAs, 401(k)s, lump sum retirement account distributions, and proceeds from the sale of a business to qualify for a mortgage.

Any IRA and 401(k) assets must be fully vested, and must be “entirely accessible to the borrower, not subject to a withdrawal penalty, and not be currently used as a source of income.”

4. Buy a home with investment money

Investment funds can be used to qualify for a mortgage. But lenders likely won’t count the full asset amount.

When retirement accounts consist of stocks, bonds or mutual funds, lenders can only use 70 percent of the value of those accounts to determine how many distributions remain.

5. Buy a home with a co–signer

One of the quickest and easiest solutions for seniors who are having trouble with income qualifying is to add a co–signer.

Some retired parents are doing this by adding their children to their mortgage application.

A child with substantial income can be considered alongside the parent, allowing them to buy a home even with no regular cash flow.

Fannie Mae has an increasingly popular new loan program for co–signers. The “HomeReady” mortgage program allows income from non–borrowing household members, like adult children, to be counted.

To qualify for HomeReady, you must be purchasing a primary residence – not a vacation home or investment property.

6. Buy a home with non–taxable income

Another helpful solution for seniors is counting non–taxable income.

Social Security income, for example, is typically not taxed. Most lenders can increase the amount of this income by 25 percent, also known as “grossing up,” when calculating monthly income.

Unfortunately, just because a lender is allowed to gross up non–taxable income, it doesn’t mean they have to. Further, they may choose to gross up by a smaller percentage, such as 10 or 15 percent.

Speak to your lender about how it calculates non–taxable income.

7. Reverse mortgage loans

One increasingly popular mortgage product specifically designed for seniors is the reverse mortgage loan.

The reverse mortgage is officially called the Home Equity Conversion Mortgage or HECM, and is backed by the Federal Housing Administration (FHA).

Reverse mortgages allow seniors to access the equity in their home via monthly payments made to the retiree. The interest is then deferred to when the loan matures.

Over time, the balance owed on the house rises, while the amount of equity decreases.

With a reverse mortgage, one borrower must be at least 62 years of age or older to qualify.

Reverse mortgages aren’t for everyone. Another type of loan – like a home equity line of credit (HELOC), home equity loan, or cash–out refinance – is often a better choice to access the value of the home.

Learn more about who should and shouldn’t consider a reverse mortgage here. Or check out the Department of Housing and Urban Development resource page on HECM reverse mortgages.

8. Property tax breaks for seniors

One final thing to consider as a senior homeowner is that you may qualify for a property tax break.

Rules to claim your senior property tax exemption – and the amount your taxes could be reduced – varies by state. So check with your local tax authority or financial planner for more information.

If you do qualify for reduced real estate taxes, this could help lower your debt–to–income ratio (DTI) and therefore increase the amount you can borrow on your new home loan.

Senior home buying example: Qualifying for an asset depletion loan

As an example, suppose retiree Michael has $1,000,000 in his 401(k) and he has not touched it.

Michael is not yet 70½, the age at which the IRS requires account owners to start taking required minimum distributions from 401(k)s.

He is living off Social Security income, along with income from a Roth IRA.

To qualify Michael for a mortgage, the lender uses 70 percent of the 401(k) balance, or $700,000, minus his down payment and closing costs.

Note: Fannie Mae also allows borrowers to use vested assets from retirement accounts for the down payment, closing costs, and reserves.

Let’s say that after down payment and closing costs, Michael is left with $630,000.

Assuming a 30–year mortgage, that amount of $630k can then be used to gradually pay for his mortgage over the next 360 months. That would give him $1,750 a month to put toward a housing payment.

  • Amount in 401(k) = $1,000,000
  • Qualifying 401(k) funds (70%) = $700,000
  • Funds left after down payment and closing costs = $630,000
  • Monthly mortgage budget ($630K / 360) = $1,750

Though it is not a separate loan type, lenders sometimes call this an “asset depletion loan” or “asset based loan.” And borrowers may still count income from other sources when they use assets to help them qualify.

Michael could use the asset depletion method from his untouched 401(k) combined with the income he is already receiving from Social Security and his Roth IRA to qualify and borrow as much as possible.

He does not actually have to start dipping into his 401(k) to pay the mortgage, but this calculation shows his lender that he could rely on his 401(k) to pay the mortgage if need be.

Challenges retirees and seniors face when getting a mortgage

While there is no maximum age limit to apply for a mortgage, seniors and retirees may find it tougher to qualify for a home loan.

Here are a few challenges you might face when buying or refinancing, and what to do about them.

No regular income

Mortgage companies need to verify that you can repay a home loan before they’ll lend to you.

Usually, that means looking at monthly income based on W2 tax forms. But most seniors won’t have a regular monthly cash flow to show lenders.

For those in retirement, lenders will often consider 401(k)s, IRAs, and other retirement account distributions for mortgage qualifying.

They’ll also consider Social Security income, pension, and income from investments.

However, borrowers need to prove these funds are fully accessible to them at the time they’re applying. You can’t qualify based on retirement accounts or pension unless you can draw from them without penalties.

And retirees need to show that their retirement accounts can be used to fund a mortgage on top of regular living costs like food and utilities.

Income ending in under 3 years (retirement)

Home buyers who aren’t yet retired, but plan to retire soon, may hit a different snag in the mortgage application process.

When you buy a home or refinance, mortgage lenders need to verify your income source will continue for at least 3 years after the loan closes.

Someone retiring in a year or two would not meet this continuing income requirement.

In that case, they would not qualify for a mortgage or refinance loan – no matter how high their credit score or how much money they have stashed away in investments and retirement accounts.

The simplest solution to this problem? Don’t tell your lender you plan to retire.

There’s nothing on your pay stubs to cue a lender off about retirement plans, so they have every reason to believe your income will continue.

There’s also no guarantee that you will require when planned. Many people change their plans based on the current economy, their investments, or their desire to keep working.

However, you’ll need to be absolutely certain you can afford mortgage payments with the income you’ll have in retirement.

If you’re in a situation where you’ve received a retirement ‘buyout’ or your employer tells your lender about retirement plans, you may not be able to qualify for a new mortgage.

In this case, you may have to wait until you’ve retired and begun drawing from your retirement accounts in order to qualify based on your assets rather than your income.

Accessing retirement funds

Most underwriting guidelines consider distributions of 401(k)s, IRAs, or other retirement accounts to have a defined expiration date. This is because they involve depletion of the asset.

As such, borrowers who derive income from such sources must be able to document that it is expected to continue for at least three years after the date of their mortgage application.

In addition, individuals typically cannot withdraw money from 401(k) accounts before age 59 ½ without penalty.

For this reason, the retiree must prove unrestricted access to these accounts, and without penalty.

If the accounts consist of stocks, bonds, or mutual funds, those assets are considered volatile. For this reason, lenders only use 70 percent of the value in retirement accounts to determine how many distributions remain.

When does it make sense to get a home loan as a senior?

Many retirees and seniors are opting to have a mortgage instead of paying off their loan balance or buying a new home with cash.

This can free up savings for other uses. Necessities such as food, transportation, and long–term care are among the highest expenditures for seniors.

Other than freeing up assets, there are a number of reasons seniors may be considering financing a new home purchase.

  • Sizing down – Empty nesters may size down to minimize square footage, maintenance, and mortgage costs
  • Physical challenges Cleaning and repairs can become physically taxing. Many seniors purchase a new home to cut down on upkeep
  • Supplementing fixed income More and more senior citizens are finding it difficult to live on their fixed incomes. Retirees may decide to sell or refinance their homes, finance a new home purchase, and use the equity cashed out to supplement their income
  • Moving to a new area According to one survey, as many as 40 percent of retirees are venturing out of their home state looking for better weather, recreation, favorable taxes, and other benefits

If any of the above applies to you, it might be worth it to consider financing a home in retirement.

Find the best mortgage for you

Most mortgage lenders have loan programs that make it possible for seniors to buy a home or refinance their current home.

However, not all lenders are experienced in issuing mortgages to retirees.

Prior to choosing a lender, make sure to ask a few screening questions. You’ll want to know how the lender qualifies retirement income, as well as how they calculate qualifying income from assets.

A few questions asked upfront can help you find an experienced lender to process your application and get you the best deal.


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