When it comes time to retire, people often downsize or relocate. To reach their retirement goals, many will still want to get a mortgage to finance their next home. While you likely have experience with taking out a mortgage, there are important differences you should know about getting a loan once you’re retired.
6 answers to common questions about qualifying for a loan when you retire.
Q1: What types of retiree income will lenders consider?
A: If you have one or more of these common income types for retirees, you may be able to use them to qualify for a mortgage with documentation to support current receipt and 3 years duration of the income: Social Security benefits, pension payments, or regular distributions from qualified retirement accounts (IRA, Annuity, 401K).
Q2: Does income from investments, such as stock dividend payments and rental real estate help us qualify?
A: That depends. Interest and dividend income used to help qualify for a loan must be verified with a steady history for at least two years and assets to support the likeliness of continuance. Rental income from real estate typically requires a 2-year history and current rental agreement with the tenant. At times, waiting a few months can qualify you for a more expensive home or better mortgage terms.
Q3: If we plan to rent out a room in our home, can that income help us qualify?
A: Airbnb reports that seniors (60 years old or more) are the fastest-growing segment among their hosts. Such income can be a boost in retirement, but may not be usable for loan qualification if the home is zoned for single-family use. The income will also have to qualify as in #2 above. Be sure to consult with your lender and tax professional for more information.
Q4: If we downsize and sell our primary residence, how much tax will we owe?
A: The the first $250,000 ($500,000 for married couples filing jointly) in profits from the sale isn’t taxable. Again, you’ll want to consult a tax professional for more information.
Q5: Are there any government-sponsored loans for retirees?
A: Freddie Mac, the government-backed housing finance giant, started allowing lenders to consider retirement-account assets a few years ago, helping retirees qualify for larger loans.*
Q6: Does our retirement status put us at a disadvantage when qualifying for a loan?
A: Actually, most loan applicants over 65 have good credit and less debt than younger Americans. That can work in your favor when the lender calculates your maximum debt-to-income (DTI) ratio, which helps determine how much you can borrow. Also, the Fair Housing Act of 1968 prohibits discrimination of borrowers on the basis of age.
All in all, since income from employment ends once you retire, qualifying for a loan may be more challenging. That’s why we’re here! Let us help you get started in planning your future for home and retirement.
Our Opes Advisors Mortgage Advisors are always available to answer questions and update you on news and rules related to retiree mortgages, so contact us.
*While this is a new rule giving lenders more flexibility, it doesn’t guarantee you can get a government-backed loan.
Information is accurate on the date of publication. Please check with a Mortgage Advisor and consult with your tax advisor for current information related to your specific situation.
Programs only for qualified borrows. All borrowers subject to credit approval and underwriting terms and conditions. Programs subject to change without notice. Some restrictions apply.
Opes Advisors, a Division of Flagstar Bank | Member FDIC | Equal Housing Lender