Purchasing a home later in life is a bit different from purchasing a home in your younger or middle-aged years, particularly when it comes to loans. The process of applying for a mortgage after retirement is similar, though not quite the same, and it can be helpful to understand your options before you start your home search. Here’s what you need to know.
Qualifying for a Mortgage After Retirement Differs
Since you won’t have regular monthly income in the form of a paycheck, lenders will need to verify your funds using a different method. There are two main methods that are commonly used.
Withdrawals from retirement accounts
Provided you are at least 59 ½ years of age, you can use withdrawals from an IRA to show income. Typically, a lender will need to see at least two months of withdrawals as “monthly income”. The lender may request to verify this with a financial planner or institution.
If you have a significant number of assets or investments, you might be able to use them as “income”. Lenders will typically calculate the current total value of your assets, then subtract a down payment from that amount. They then take 70% of the remaining balance and divided it by 360 months (for a 30-year loan). That final number is your monthly “income”.
Debt-to-income ratios still matter
Once you and your lender have settled on a method for calculating income, your lender will next determine how much of that “income” is being spent on debts. This includes required payments, like alimony, car payments, credit card payments, any other current loans, and your projected home payment. In total, your debt-to-income ratio cannot exceed 43% of your total income.
Note: It’s important to remember that any loan you cosign for, such as student loans or car loans (including for adult children), counts towards your debt, even if you aren’t actually paying down the loan.
There Are Different Loan Options Available
If you’re concerned about meeting the strict credit, income, or down payment benchmarks typically required for conventional loans, don’t worry! You might have other options.
If it’s been a while since you last bought a home, you might not realize just how many different loan options are out there. For example, the FHA loan requires down payments of as little as 3% and has much looser credit requirements, and the VA loan is specifically targeted to helping military and veterans buy homes.
When in Doubt, Ask a Pro!
Not sure what your options might be or whether you might qualify for a mortgage after retirement? Need recommendations for good lenders used to working with retirees? We can help! Contact The Walk at East Village today to learn more about how we can help you jumpstart the retirement lifestyle of your dreams.