In this article we’re going to discuss tips on how to getting the best mortgage on retirement income. When it comes to mortgages, most people think that homeowners should pay off their mortgage before retirement, so they no longer have to deal with large monthly payments while on a smaller income. Nowadays, that’s just not the case. A study by AARP found that over 44% of people aged 60-70 currently have a mortgage on their home.
There are also many cases where people living off of retirement income are planning on moving into a new home and will be needing a home loan. It’s natural to worry that once you’re retired, getting the mortgage you need may be more difficult, but it’s not impossible.
Can You Get A Mortgage in Retirement?
This is the big question – is it possible to qualify for a mortgage after retirement? Financial planners and mortgage lenders along with industry titans all agree that acquiring a mortgage in retirement is a possibility. Under the equal credit opportunity act, lenders cannot discriminate against borrowers based on age.
In fact, the AARP study we talked about earlier in this article found that about 17% of those people over the age of 60 don’t expect to be able to pay off their entire mortgage.
How To Get A Mortgage On Retirement Income
The key thing to know is that a retired borrower simply needs to show that they have good credit, not too much debt, and enough income to keep up with the mortgage payments for an extended period of time.
Although the process is fairly similar for both borrowers, retirees may need to demonstrate proof of income differently. After approval, retirees can even take out a 30-year mortgage because lenders cannot make decisions based on the life expectancy of a borrower.
If you’re looking into qualifying for a mortgage after retirement, there are a few things you need to understand about how lenders will evaluate you.
When trying to qualify for a mortgage, it’s important that retirement income is steady, predictable, and expected to continue regardless of if the retiree is upsizing or downsizing. Retirees often assume that without a steady paycheck they will not qualify, however, there are a number of sources that can contribute to retirement income including:
- Social Security – If the social security income is meant for the retiree then it is assumed to have no expiration. If the social security income is from a family member, then the borrower will need to prove that the income is secure for at least three more years.
- Retirement or Pension Income – This type of income is not expected to expire and will be counted as income. It’s important to note that some pensions will decrease the income amount for a surviving partner, so make sure that they will be able to take care of all expenses in the event of your passing.
- Annuities – If the borrower can prove that this income will last for at least three years then it may be included on the mortgage application.
- 401k, IRA, and Keogh Plans – the borrower must have access to the accounts with no penalties. Payments from these accounts must last at least three years after the date of application. If any of the accounts contain stocks, bonds or mutual funds then only 70% of the income received will be counted.
Having a good credit score is required for any loan qualification and this is no different. Some lenders have different requirements that may allow you to obtain loans with a lower credit score such as FHA. It’s also important to remember that credit score can have an impact on interest rates with the general trend being the higher the credit score the lower the interest rate.
Debt-to-income Ratio (DTI)
Your debt-to-income ratio plays a role in getting a mortgage during retirement. It is common to see that most lenders prefer a DTI of 43% at the most. This means that all of your debt can be paid using 43% or less of your income.
Advice for Getting a Mortgage During Retirement
When considering a mortgage during retirement, it’s important to consult with a financial advisor. They will be able to lead you in the right direction and give you information about your retirement mortgage options.
It’s also essential to have a realistic budget before talking to a lender. You’ll need to account for medical costs, inflation, increasing property taxes, etc. before deciding if getting a mortgage in retirement is right for you. If you’re living on retirement income and you’re interested in seeing how much you qualify for, click here to schedule a free consultation with one of our mortgage experts.