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How To Get A Mortgage After Retirement
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How To Get A Mortgage After Retirement

Whether you’re planning to relocate, downsize or finally move into your dream home, you may need to get a mortgage after retirement. Unfortunately, qualifying for a home loan can be difficult for those on a fixed income. Still, it’s possible for creditworthy homebuyers to purchase a new home by relying on income from retirement accounts and other investments.

If you’re retired and considering a mortgage, follow these steps to get started.

1. Evaluate Your Credit Score

If you’re preparing to retire, chances are you have a well-established credit profile. Lenders prefer mortgage applicants to have a credit score of 620 or better to qualify—and borrowers with higher scores qualify for the most competitive rates. If you’re trying to get a mortgage after retirement, check your credit score so you know what to expect when you apply. Knowing your score in advance also gives you the opportunity to make improvements before talking to a lender.

Here are four ways you can check your credit score:

  • Visit the three major credit bureaus
  • Go through a free credit scoring website
  • Via your credit card provider’s credit tracking tools
  • Seek the help of a nonprofit credit counselor

2. Determine Your Income After Retirement

A homebuyer’s income is another important factor when applying and qualifying for a mortgage. When evaluating a mortgage application, lenders typically require income documentation going back two years. However, if you retired more than two years ago, this may not be as straightforward as providing copies of your W-2s. Instead, you’ll need to show evidence of Social Security, pension income, dividends and interest payments.

Alternatively, you can rely on your retirement or other assets to establish a monthly income using one of two methods:

  • Drawdown on retirement. A “drawdown on assets” method is considered the best option for retirees without any Social Security or pension income. Borrowers who are at least 59.5 years old can use retirement account withdrawals as proof of income. Under this approach, a retired homebuyer who withdraws $5,000 from an IRA each month—for a minimum of two months—is seen as having $5,000 in monthly income.
  • Asset depletion. To use this method of income, add the current value of all your financial assets and subtract any portion of the assets you plan to use for a down payment or to cover closing costs. Finally, calculate 70% of the remaining value and divide that number by 360 months to calculate income over the course of a 30-year mortgage.

3. Calculate Total Housing Expenses

Housing expenses generally include the mortgage principal and interest, taxes and insurance (known as PITI). But it can also extend to the cost of maintenance, utilities and homeowners association (HOA) fees. To qualify for a mortgage after retirement, make sure your PITI is less than 28% of your total income.

For example, consider a $900,000 home located in a gated community with HOA fees of $100 per month. If a homebuyer plans to get a $720,000 mortgage (for 30 years at a 3.5%) and pay $500 per month in property taxes and $300 per month in property insurance, the monthly PITI payment would be just over $4,033.12. Add in the HOA fees, $250 in utilities and $100 in lawn maintenance each month, and the total monthly housing expenses would be around $4383.12.

4. Check Your Debt-to-income Ratio

Your debt-to-income (DTI) ratio is all of your monthly debt payments compared to your gross monthly income, expressed as a percentage. A DTI of 43% or less is necessary for a Qualified Mortgage (QM) within the safe harbor regulatory requirements. However, lenders prefer applicants to have a DTI of 36% or less to qualify for a mortgage. There are a number of online calculators available for determining your DTI, but the general equation is as follows:

DTI = Monthly Debts / Gross Monthly Income

When calculating your DTI, include everything from housing expenses (PITI), alimony and child support to student loan payments, car payments and credit card minimum payments. Also keep in mind that any loans you co-sign for adult children may also impact your DTI and could hinder your ability to get a mortgage after retirement.

5. Consider the Type of Property

The type of property you want to finance may also impact your ability to qualify for a mortgage after retirement. For example, if you’re planning to mortgage your primary residence where you spend most of the year, it will be easier to qualify for a loan.

Alternatively, a secondary home—like a summer house—may be more difficult to finance if you already have an existing mortgage on your primary home. In this type of situation, you’ll likely need to make a larger down payment and meet more stringent income and credit requirements.

6. Applying for a Mortgage

If you’re ready to get a mortgage, you can streamline the mortgage process by working with your current lender or a financial institution that’s familiar with your finances. If your current lender isn’t offering competitive rates, shop around to find one with low rates and limited closing costs and origination fees. When researching lenders, also ask about any additional expenses like mortgage insurance and discount points that could get rolled into your loan balance.

Where available, take advantage of the preapproval process to find out what kind of mortgage you’re likely to qualify for. Not only can mortgage preapproval right-size your expectations when shopping for a home—and a lender—it’s an excellent way to show sellers you’re serious when it’s time to make an offer.

Preapproval can also shorten the application and final approval process because you already have easy access to documentation of personal details like your credit score, income and assets.

Down Payment Options

Down payment options for retirees are more diverse than for traditional mortgages. Depending on how you calculate your monthly income, you may only need to put 5% of the purchase price, as is often the case with the drawdown from retirement method. However, this number is typically higher for asset depletion-based incomes and could be closer to 30%.

Retirees can also make a traditional down payment by pulling cash from an IRA or other tax-deferred retirement account—but these withdrawals are treated as taxable income.

Seeking Alternative Finance Options

If you struggle to qualify for a traditional mortgage, you may be able to take out a loan against your non-retirement brokerage account if you have one. Not only does this approach let you sidestep income requirements, it can make your offer more attractive to sellers because it’s a cash offer, not contingent on financing. The extent to which you can borrow against an asset’s value depends on the lender. For example, Schwab clients may be able to borrow against up to 70% of their eligible assets.

Keep in mind, however, that this financing structure typically comes with abbreviated loan terms (often as few as five years) and higher interest rates than mortgages. So, if you take this approach and want to lower your monthly payment or rate, you’ll have to refinance it with a mortgage after the fact.

Should You Have a Mortgage in Retirement?

Ideally, you should not have a mortgage in retirement. This is because large monthly mortgage payments are more difficult to cover in the absence of steady, reliable income. Oftentimes, retirees are forced to make withdrawals from their retirement funds to cover mortgage payments rather than saving that money for necessary living expenses down the line.

That said, paying off your mortgage before retiring may not always be possible—or wise. For example, using a large portion of your savings, retirement funds or other investments can leave you without an emergency fund.

Likewise, making large withdrawals from certain investment accounts can lead to costly tax implications and penalties, and may cost you more in the long run. You may also be able to earn a higher rate of return on your money by keeping it invested, rather than using it to pay off your mortgage.

Ultimately, the decision to enter retirement with a mortgage depends on the homeowner’s unique circumstances. For that reason, we recommend consulting with a financial advisor before committing to a mortgage or using retirement assets as a down payment.


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