Home Loan Borrowers with Social Security Income
For home buyers who are retired and are on fixed income, they can still qualify for a mortgage as long as they have social security income and/or pension income. Many retired people think they do not qualify for a mortgage loan because they do not have full time employment and only have a small social security income.
Qualifying for mortgage with Social Security Income
There are millions of homes that are currently on the market at bargain process due to the 2008 real estate and credit crash. For those Americans who are retired and on a fixed income, they can use that income to qualify for a mortgage loan. The great part of using social security income is that it can be grossed up by 25%. For example, if the potential buyer of a home wants to qualify for a mortgage and their only income source is social security and the monthly social security check is $1,000, we can increase that $1,000 net social security income by 25%, or $1,250. We would be using the $1,250 monthly income to qualify for a mortgage.
Social Security Income can be grossed up
Lets take a case scenario. Lets say that Jim Jones has social security income of $1,000 and no other debt and has $20,000 to put down towards the down payment of a new home and wants to see what mortgage loan amount he qualifies for. Lets say the lender wants a maximum 45% loan to value housing ratio. First thing we do is to gross his income up to $1,250. We then take $1,250 and multiply it by 45% so we get the maximum monthly mortgage payment that can be allocated which needs to include principal, interest, property taxes, and homeowners insurance. That amount is $562.50 per month that is allocated towards his housing expenses. Again, the housing expenses includes principal, interest, taxes, and insurance.
How underwriters calculate Social Security Income
For math purposes, lets say his insurance is $600 per year and taxes are $1,200 per year. So his combined taxes and insurance monthly payment is $150 per month. You subtract the $150 from the maximum monthly housing allowance of $562.50 and you get $412.50 that can be applied towards the mortgage payment only. For Jim Jones to get a $412.50 monthly mortgage payment at an interest rate of 4%, his mortgage loan amount is $86,402.76.
If Jim Jones would want a conventional loan and putting a 20% down payment so he does not have to pay private mortgage insurance, Jim Jones can buy a $107,000 market price house and get a 80% mortgage loan of $86,000 and have his monthly payment be $562.50 which includes principal, interest, taxes, and homeowners insurance on this case scenario.