Contrary to popular belief, retirement doesn’t mean you can’t get a mortgage. Your long credit history and assets can work to your advantage.
One mortgage broker even recalls securing a 30-year loan for her 92-year-old client. Your age is not a limit to the term of your mortgage.
With that being said, getting a mortgage during retirement may be tricky. You’ll have to have sufficient assets to make up for lack of a predictable income.
The following considerations allow you to prepare yourself for the mortgage application process.
Count Income from Non-Borrowing Household Members
It’s not unusual for retirees to live with their children. Just because they’re not on the mortgage doesn’t mean their income has to be excluded. A variety of programs allow you to secure loans using income from other sources, including relatives living with you. Both private banks and FHA programs exist for these situations.
Non-Taxable Income Counts Higher Than Taxable Income
Because Social Security income is not taxed, a $1,000 a month payout can count as $1,250 in monthly income. Lenders have rules that allow them to count it this way. So what you see on your mortgage paperwork is not a mistake, but using different rules than regular take-home pay.
If your home is for only one or two, a large single-family home is no longer necessary. Consider moving into a townhome or condo if you desire to stay in the same area. Not only will your mortgage be lower, you won’t have to worry about the stress of maintaining a larger home as you get older.
Use Your Retirement Assets to Buy Your Home
This is by far the most common way to qualify. If you’ve invested in stocks and mutual funds, your lender will not be able to consider the full amount. But savings (after closing costs) will be divided by 360 months to determine your ability to pay a 30-year mortgage. This allows you to hold onto your savings a little longer.
Be Sure Your Budget Supports Unexpected Expenses
While you’ll be able to determine your monthly mortgage payment, taxes and other fixed expenses, remember that home ownership includes plenty of variables. Things break, storms create damage, and a number of problems can cause a strain on your budget.
You can’t pick up extra hours at the office to make up for the extra expenses. If you tie up every penny you have buying a house, you won’t be able to maintain it. Budget for buying your home plus the unexpected.
Use a Reverse Mortgage to Finance a New Home
If you have a considerable amount of cash to put down on a home, there is a way to get a reverse mortgage for about half of the home’s value. The Home Equity Conversion Mortgage for Purchase (HECM) program is a newer product started in 2009 for seniors 62 and older looking to purchase a home.
You must be able to pay the home maintenance costs, but after paying the initial down payment there’s no monthly mortgage payment required. This is a great program for higher cost areas like DC, where high sales prices prevent retirees for paying cash for a home.
Getting a mortgage in retirement is different than buying a home for the first time, but it’s not impossible. From using non-standard income to getting a reverse mortgage, these options allow you to finance the home you’re dreaming of.