Can You Qualify For A Mortgage If You Are Retired

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Va Loan Eligibility For Reserve Members

Getting a Mortgage When You Are Retired – Will I Be Accepted or Do I Need To Buy a Home ALL Cash??

Like members of the National Guard, if you serve today you must have 90 days of service. You may also have six years in the Selected Reserve and one of the following must apply:

  • You have an Honorable discharge or
  • You were placed on the retired list, or
  • You were transferred to the Standby Reserve or
  • You were transferred to an element of the Ready Reserve other than the Selected Reserve or
  • You continue to serve in the Selected Reserve

Staying In Your Current Home

A lot of people approaching their retirement years intend to age in place by staying in their current home and adapting it to their needs as time goes on. This can be a nice option if you love your home. You’ll also know your home’s maintenance requirements and can plan for them. Be aware of the increasing maintenance costs as you grow older, though. This includes retrofitting for your changing needs and paying someone to do the things you may no longer be able to do yourself.

  • Pros: You get to stay in the home you already know and love
  • Cons: Retrofitting and increasing maintenance costs over time

What Mortgages Can A Pensioner Get

Some types of mortgage are aimed specifically at older people. Here are the main ones.

Retirement interest-only mortgages these work in a similar way to standard interest-only mortgages in that you only pay the interest each month. However, you only repay the outstanding balance once you die, go into long-term care or sell the house.

Lifetime mortgage this is a type of equity release that lets you borrow a lump sum secured against your home, which you repay when you die, move into your long-term care or sell the house. You pay interest on the amount you borrow, which will either compound over time to a lump sum you pay at the end or you may be able to pay it off as you go to avoid it increasing. Find out about the pros and cons of equity release.

Older Peoples Shared Ownership this government-backed scheme isnt a traditional mortgage, but it does offer a way for pensioners to buy a home. It allows you to buy a portion of a property and pay rent on the remainder. You can only buy up to a 75 per cent share, and once you reach this threshold, you wont pay any more rent.

Home Ownership for People with Long-Term Disabilities just like OPSP, HOLD is a shared ownership scheme. It lets you apply for properties that meet your needs if there arent any available through OPSP.

Read Also: Pension Plan Vs Retirement Plan

Now Is A Good Time For Retirees To Refinance Here Are Some Points To Ponder

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As more Americans have bucked conventional wisdom in recent years and retired while still carrying a home mortgage, the market upheaval has created an opening to consider refinancing.

The average rate for 30-year fixed-rate loan dipped below 3.15% in early Marchversus an average rate of 4.5% in 2018 and 3.9% in 2019and recently hovered around 3.5%, raising the question of whether older owners should refinance their home loans even if it means adding years to their payoff date. For someone with a $300,000 loan, the difference between 4.5% and 3.5% is nearly $200 a month and $62,000 in total interest over 30 years.

From a pure budgeting standpoint, lowering a payment by even a few hundred dollars can drastically impact your quality of life and the strain on your investments and accounts, says Scott McCaskill, an advisor with McCaskill Financial in Frederick, Md.

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Retirement

Barrons brings retirement planning and advice to you in a weekly wrap-up of our articles about preparing for life after work.

For retirees, however, the decision to refinance a mortgage isnt simply a matter of weighing upfront costs against monthly savings to calculate how long it takes to break even. Older homeowners need to have a clear understanding of what they hope to get out of a refi, and what it means for the big picture of their planning.

If You Can, Pay It Off
Cash Flow Is Key

Questions? Comments? Write to us at retirement@barrons.com

What Is Your Purpose For Refinancing

How to Get a Mortgage Once You Are Retired

In some instance, homebuyers will do what is called a cash-out refinance. This means the refinanced mortgage loan is for a larger amount than the existing one, and the homeowner gets the difference between the two loans in cash to spend on other purposes. If you are a person looking at a cash-out refinance as a way to pay off debt or make home improvements prior to retirement, this could prove to be a financial burden rather than an advantage.

Consider carefully before extending the burden of making monthly mortgage payments into your retirement years. Your goal at this point in life should be to reduce monthly payments and reduce debt. Also, if you have lived in your home for a while, you most likely have built up equity. Increasing your mortgage could eat away at that equity, which could otherwise be used for financial emergencies in retirement.

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Can I Apply For A Mortgage In Retirement

Home-buying trends and the challenges that retirees face when purchasing a home can change, adapting to shifting retirement ages. If youâre retired or close to retirement, you may be thinking about buying a home for one of a number of reasons, including remortgaging, moving elsewhere, buying to let, downsizing your home or helping out your children or grandchildren to buy a property of their own.

Anyone applying for a mortgage is typically assessed to see if theyâre able to afford the loan repayments and to repay them on time. Among the criteria that lenders typically look at when assessing a mortgage application is your income. Just because youâve retired and no longer have a steady stream of income doesnât mean that youâre automatically disqualified. Some lenders are willing to accept applications from applicants over the age of 65, according to this article from August 2016. Itâs likely that youâll still have to prove that youâll receive funds regularly, such as from your pension.

If youâre thinking about applying for a mortgage in retirement, you may want to consider speaking to your family and friends first, as they may have useful ideas of suggestions to help with your purchase or living situation. You may also want to consult with an independent financial adviser to see if your getting a mortgage may impact your finances in other ways, for example, when it comes to taxes, benefits or investments.

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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Can You Get A 30

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 were basing eligibility on age alone, a 36yearold and a 66year 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. Youll likely have to provide extra documentation supporting your various income sources .

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.

When Paying Off Your Mortgage May Not Make Sense

Q& A: Can You Get a Mortgage If Youre Retired?
  • You have to withdraw money from tax-advantaged retirement plans such as your 403, 401 or IRA. This withdrawal would be considered a distribution by the IRS and could push you into a higher tax bracket.
  • Withdrawing the funds puts your retirement savings at risk or forces you to make drastic changes in your lifestyle.
  • You carry other debt with higher interest rates and fewer tax advantages. You may benefit from tackling other debt before paying off your mortgage.

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Buy A Home With A Cosigner

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

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 cosigners. The HomeReady mortgage program allows income from nonborrowing 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.

Va Loan Eligibility For Surviving Spouses

You may be eligible for the VA home loan program if you are the surviving spouse of a veteran who has died, is missing, or declared a prisoner of war. If this applies to you, contact the Department of Veterans Affairs directly at 1-800-827-1000 to discuss your circumstances and how to apply.

The rules for surviving spouses are unique and you should get help from the VA and from your participating lender to start the process. In general, surviving spouses may qualify if one of the following applies:

  • The veteran is declared missing in action
  • The veteran is a prisoner of war
  • The veteran died while in service or from a service-connected disability and the surviving spouse did not remarry
  • The veteran died while in service or from a service-connected disability and you didnt remarry before you were 57 years old or before December 16, 2003, or
  • The veteran had been totally disabled and then died

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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 youre 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 youre on Social Security income. Heres what to know.

How To Qualify For Retirement Mortgages

Can I apply for a mortgage when I have retired?

Applying for a mortgage if youre retired is the same as applying for a mortgage with a regular job. You need to meet the same basic credit and down payment requirements, but document your income based on the type of retirement income you receive.

Below is a breakdown of acceptable retirement income types, and the documents your lender will need to qualify you for a mortgage.

Read Also: What Of My Income Should I Save For Retirement

How To Refinance A Mortgage During Retirement

As a retiree, the fixed income you receive from your retirement savings and Social Security benefits may not be enough to show lenders youre prepared to refinance your mortgage. If this is the case, you may need to pay down your loan amount to show youre financially stable enough to handle a refinance. Speak with a lender before paying down some of your mortgage to ensure this move is still beneficial to your budget.

Your 401 or individual retirement account savings may not be included in your current income calculations, especially if you havent received distributions from these accounts yet. If you have a substantial amount of money in these retirement assets, ask your lender if you can annuitize them so they may also be considered as part of your income. With your retirement savings taken into account in your income calculations, its more likely youll qualify for a mortgage refinance.

When analyzing your retirement income, its important to ensure you have enough to last throughout the years youre not working. Refinancing your mortgage may help you to pay off your home sooner or lower your monthly mortgage payments. However, you should weigh the pros and cons of a refinance before deciding if its right for your retirement budget.

Recommended Reading: The Best Places To Retire Heres Where To Start

Determining Income For Retirees

Retirees assume that if they dont have a paycheck, they wont qualify for a mortgage, due to lack of income.

In reality, lenders have two methods, described below, that they can use to calculate income for a retiree who is drawing on their assets.

Drawdown From Retirement Method For retirees who are following a plan where they are now retired but may be delaying the start of Social Security or pension income, the most favorable option is to use the drawdown on assets method of determining income. Heres how it works.

As long as the borrower is age 59 1/2 or older, the lender can use recent withdrawals from retirement accounts as proof of income. For example, assume that recent bank statements show withdrawals of $4,500 per month from an IRA. This $4,500 would be considered monthly income. Sometimes, the lender will need a letter from a financial planner or financial institution confirming these withdrawal amounts.

Asset-Depletion Method For retirees with a lot of invested assets, the asset-depletion method of determining income may work well. With this method, the lender starts with the current value of financial assets. Then they subtract any amount that will be used for the down payment and closing costs. They take 70% of the remainder and divide by 360 months.

Of course, any other sources of income, such as pension income, Social Security, or monthly annuity income, would also be counted in addition to income using the methods above.

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How Does The Qualifying Process Differ When Buying A Retirement Home

The rest of the homebuying process will look a lot like it does for someone whos still working. You’ll need to make an offer on a property, qualify for the mortgage and attend the closing. Consider working with a lender who has experience working with retirees. Theyll know what your options are when it comes to qualifying for a loan, and be able to advise you about available mortgage options.

Buying a home at any stage of life is a big commitment, but working with a Home Lending Advisor can help make the process easier.

Investigating The Options When You Have Plenty Of Assets But No Regular Income

How to Qualify for a mortgage in Retirement The Maulding Team

To buy … or to keep renting?

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Most early retirees have no pension, annuity or Social Security income. Even if youre a traditional retiree, you might have only one of those income streams.

But what if your lifestyle plans require a home purchase? Even if you have the savings to afford a house, you might not necessarily be able to liquidate enough of those assets quickly in a tax-efficient manner. So youll need a mortgage. But most conventional mortgage loans are based on income. If you cant show income, how do you go about getting a mortgage?

When we retired, downsized and moved west, I swore Id never own another house. My post about our move across the country spells out the high quality of life weve achieved as renters without the obligations of home ownership. And my article about renting vs. buying lays out a procedure for analyzing the rent vs. buy decision.

But I have never denied the emotional benefits of home ownership. There is an element of control and security in owning the property where you live. Im not immune to that feeling. We owned our home for the 17 years we were raising our son in Tennessee, and were content. But for the past four years, other factors have clearly made renting the better choice for us.

Jumping through hoops
My search

After USAA, I contacted Charles Schwab, custodian for some of my non-retirement money. It turns out that Schwabs mortgage business is administered by Quicken Loans.

Other options

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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 longterm 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.

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