The Ascent’s Best Mortgage Lender Of 2022
Mortgage rates are at their highest level in years and expected to keep rising. It is more important than ever to check your rates with multiple lenders to secure the best rate possible while minimizing fees. Even a small difference in your rate could shave hundreds off your monthly payment.
That is where Better Mortgage comes in.
You can get pre-approved in as little as 3 minutes, with no hard credit check, and lock your rate at any time. Another plus? They dont charge origination or lender fees .
When Paying Off Your Mortgage May Make Sense
There may be good reasons to pay off your mortgage. It can save you thousands of dollars in interest, depending on the current size of your debt, and give you peace of mind that no matter what happens in the future, you own your home outright. Paying off your mortgage may make sense if:
- You have substantial retirement savings, especially if the funds you’d be withdrawing are in a taxable account and are not earning much interest.
- You’re downsizing. If you’re planning to sell your home for a smaller one, you can apply the equity to your new home, resulting in a modest mortgage or perhaps no mortgage.
Your mortgage is a factor in your retirement income plan and can affect your quality of life.
Age Limits For Getting A Mortgage
|A few lenders will offer mortgages to those aged 80, but mortgage terms are usually short.|
|85||Low||A limited number of lenders will offer mortgages to those aged 85. Term lengths will be shorter and interest rates higher.|
|90||Low||Only a handful of niche lenders will offer mortgages to those aged 90. Term lengths will be shorter and interest rates higher.|
|95||Low||Very few lenders offer mortgages to those aged 95, and those that do have stricter criteria and higher rates.|
|No age limit||Low||A handful of lenders have no upper age limit on their mortgages. Rates might be higher and criteria stricter.|
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Considerations When Applying For A Mortgage On A Pension
Pensioners applying for mortgages must keep in mind that their income and financial position might limit their success in getting a mortgage. This is mainly because a pension income is usually lower than the typical income level required. If you have assets and believe you can meet lending requirements, its a good idea to discuss your position in person with your financial provider or mortgage broker, as applying online may be difficult if you cant demonstrate your capacity to repay the loan.
Getting A Mortgage With Only Social Security Income
Old age and a fixed income does not preclude you from getting a home loan. You may not qualify for a larger mortgage that requires more earned income, you can still get a home loan with Social Security alone. However, not having regular income from a job or retirement accounts will make securing a mortgage more challenging. Below, well go over what to keep in mind as you apply for a mortgage with only Social Security benefits. Meanwhile, a financial advisor can help you plan for retirement, including finding the best time to claim Social Security.
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Be Sure Your Budget Supports Unexpected Expenses
While youll be able to determine your monthly mortgage payment, taxes, and other fixed expenses, remember that homeownership includes plenty of variables. Things break, storms create damage, and a number of problems can cause a strain on your budget.
You cant pick up extra hours at the office to make up for the extra expenses. If you tie up every penny you have to buy a house, you wont be able to maintain it. Budget for buying your home plus the unexpected.
Grossing Up Social Security Income For A Mortgage
While it will be more difficult to qualify for a mortgage with Social Security benefits as your only source of income, there is good news. Lenders give special consideration to nontaxable income, which includes disability benefits, child support payments and even a portion of Social Security benefits.
Lenders considering a conventional mortgage application, can gross up this nontaxable income and treat it as if its worth up to 25% more. Although its important to note that not all lenders will do this. Some may opt to gross up your income by a smaller percentage.
How much of your Social Security benefits are subject to income tax will depend on your combined annual income and tax filing status. Beneficiaries who file their tax returns as individuals dont pay any federal income tax on benefits if their combined income is less than $25,000. So if you collect $20,000 per year in Social Security and have no other streams of retirement income, your mortgage lender can gross up your annual income and treat it as if you earn $25,000 per year . As a result, you may qualify for a larger mortgage.
Individuals with a combined income between $25,000 and $34,000 may pay federal income tax on up to 50% of their Social Security benefits. If their combined income is more than $34,000, 85% of those benefits will be subject to income tax.
That means a portion of every beneficiarys Social Security benefits are nontaxable and can be grossed up during the mortgage application process.
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Reasons For Getting A Mortgage As A Pensioner
When youre retired, there are still several reasons why you might want to take out a new mortgage, or remortgage:
- Get the right home on retirement, you may want to buy your forever home, or one that will suit your needs as you get older
- Improve your current home as above, except you may prefer to enlarge or adapt your existing home to meet your retirement needs .
- Additional retirement income you can use a special type of mortgage to release equity from your home to supplement your other retirement income.
- Pay off an interest-only mortgage if you have come to the end of your interest-only mortgage term, you may need to remortgage to pay off the outstanding balance.
Consider Getting A Loan Instead Of Taking Funds From Your Nest Egg
Many retirees think they cant take out a loanfor a car, a home, or an emergencybecause they no longer receive a salary. In fact, while it can be harder to qualify to borrow in retirement, its far from impossible. One thing generally to avoid, according to most experts, is borrowing from retirement planssuch as 401s, individual retirement accounts , or pensionsas doing so may adversely affect both your savings and the income you count on in retirement.
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Can Someone Who Is Retired Get A Conventional Loan After Retirement
Many retired borrowers want to avoid getting an FHA mortgage after retirement because they do not want to pay the hefty FHA upfront and annual mortgage insurance premium. Fannie Mae and Freddie Mac set the agency mortgage guidelines on conventional loans. You cannot qualify for mortgages on second homes with FHA loans. Government-backed loans are for primary owner-occupant homes only. Conventional loans are for primary homes, second homes, and investment properties. Conventional loans are home loans that are not insured nor guaranteed by the government but are mortgages originated and funded by banks and lenders and sold to Fannie Mae and/or Freddie Mac. In order for Fannie Mae and Freddie Mac to purchase conventional loans, the mortgages need to conform to Fannie Mae or Freddie Macâs Mortgage Guidelines. Home Buyers can purchase second homes and investment properties with Conventional loans.
Mortgages For Over 50s
You should still have plenty of mortgage options available to you if youre in your 50s. Many lenders will be happy to offer you a mortgage with a standard 25-year term and competitive interest rates. In some cases, you may be asked to show evidence of your predicted retirement income.
Consider your options carefully and use an over 50s mortgage calculator to explore whats available. Make sure you can comfortably afford the mortgage repayments and be realistic about your future earning potential. Dont overstretch yourself after all, do you really still want to be paying off your mortgage in your 70s?
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Tips For Getting A Mortgage
- A financial advisor can help you get your financial house in order before you apply for a home loan. This may include setting a budget, saving for a down payment and analyzing your monthly expenses. Finding a qualified financial advisor doesnt have to be hard. SmartAssets free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If youre ready to find an advisor who can help you achieve your financial goals, get started now.
- Speaking of setting a budget, SmartAssets mortgage calculator can help you estimate how much your monthly payment will be based on the price of the home and the size of the loan youre getting from a lender.
- Before selecting a lender, be sure to shop around for a low interest rate. SmartAssets mortgage comparison tool will help you assess your options on the market and hopefully find a lender that suits your needs.
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How Do I Qualify If I’m Retired
The qualifying criteria are the same whether you are employed or retired. Your lender will look at your credit. They will review your income. The lender will complete an appraisal to determine how much your home is worth.
If you are purchasing a home, then they will complete an appraisal on the home you plan to buy.
When you were an employee, you could get an employment letter and pay stub to confirm your income. As a retiree, you will be receiving pension income. The lender will ask for a copy of your bank statements for 3 months to confirm the pension income you receive. The lender will also ask for the last few years T-slips and Notice of Assessments.
Provided your credit is good, you will qualify for a mortgage or home equity line of credit with a bank or trust company or credit union. The amount you qualify for will depend on your pension income. Lenders will allow up to 39% of your income to be used toward your housing costs.
Your housing costs include the mortgage payment, property tax payment, condo fees plus the cost of heating your home.
Lenders also calculate how much you qualify for based on your total debt payments including your housing costs. All your monthly obligations can not exceed 44% of your gross annual income .
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 possibleor 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 homeowners 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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What Are Your Other Alternatives
Of course, when you’re deciding whether to retire with a mortgage, you also have to consider your other options.
Obviously, continuing to work until your loan is paid could be one solution, but it’s not always possible if no jobs are available or if you have health issues — or if you are simply ready to be done with your job. You could also think about downsizing to a home you can own mortgage-free, but this can mean a major lifestyle change.
You’ll have to consider these alternatives, and weigh the pros and cons of retiring with a mortgage versus your other options, to decide what approach is best for you.
Can A Retired Borrower Have Two Primary Residences
Retired borrowers can only have one primary owner-occupant home at the same time. If a homeowner has a current home and has not yet retired yet but is shopping for a new home, that home needs to be bought as a second home. If the homebuyer is planning on buying a primary home when they retired in another state and is planning on renting out the current home, they can buy their future primary home as an owner-occupant home. However, if the homebuyer who is planning on retiring has not yet retired and has no date when they will retire, they need to buy the second home as a second home and not a primary home. This holds true even though the home buyer intends on occupying the second home purchase as a primary home at a later date. On the other hand, if the homebuyer has already retired and intends on exiting their current primary residence when they sell it or keep it as a rental, they can definitely buy the home they plan on living as a primary home as an owner-occupant home.
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How Much Can I Borrow With A Retirement Interest
Each lender has different limits on how much you can borrow against your property.
If you’re borrowing on an interest-only basis, you’re likely to be able to borrow less than if you get a deal where you also pay down the loan.
For example, you might be able to borrow 50% of the value of your property on an interest-only basis, or 65% on a capital repayment basis.
There will be other requirements, too, such as a minimum property value, minimum income and minimum loan size.
The amount you can borrow will be based upon an affordability assessment, looking at your income and outgoings to make sure you can keep up repayments once your only sources of income are from pensions, savings or investments, and not employment.
Renting A Retirement Home
Some seniors may find it makes more sense for their lifestyle and finances to rent a retirement home or apartment. Renting means you may not have to deal with maintenance issues. Renting can also give you more flexibility to move around. If you don’t already own a home, renting may be a better option.
Keep in mind that landlords can raise your rent or ask you to vacate, too. Renting can be less stable since owning a property could allow you to lock in a low monthly mortgage payment with a great interest rate.
- Pros: You’ll be able to move more easily and won’t have to worry about maintenance issues
- Cons: Doesn’t provide the same long-term stability as owning a home
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How Lenders View Retirement Income
Your income is one of the first things that lenders look at when they consider whether to extend you a loan. Many retirees assume that if they live on a fixed income, its impossible to buy a home. However, the truth is that you could buy a home without a job as a retiree as long as your income meets your lenders standards.
Well take a look at how lenders view retirement income. Well also review a few other factors that lenders consider when you apply for a loan.