Social Security Income to Qualify for Home Loan
Social security income can be used for mortgage qualification. If someone is on social security income, many mortgage lenders will allow the mortgage loan borrower to gross up the monthly social security income by 25%. For example, if a social security receipient is getting a monthly social security income of $1,000, we can modify the $1,000 gross monthly income by an additional $250 per month or 25% to reflect the borrower is making $1,250. This 25% grossing up method is an extreme help in qualifying for those whose only income is social security.
Down sizing on home purchase
A large percentage of Americans decide to downsize to a smaller home when they retire. Many times they choose a smaller home but more expensive home because it might be waterfront or golf course frontage. Even though the mortgage loan borrower might have a substantial down payment and a lot of assets, they might run into problems in obtaining a mortgage loan if they retire and qualify with only their social security income. I do have some options that a mortgage loan borrower might consider to avoid some potential hurdles.
Second Home Purchase as Primary Residence
Lets take a case scenario. Say John Jones makes $65,000 per year and is currently living in Illinois but wants to retire this year and retire to Florida and buy a home there. He currently owns a home in Illinois that is worth $200,000 and is free and clear. He wants a mortgage in the new Florida home because he wants to use the proceeds of the sale of the house as a nest egg towards his retirement. John’s social security income will be $1,000 per month when he retires. How should John go about getting his new Florida home.
Purchasing a home as a second home
One way John can go about getting his Florida dream home is to see if he can purchase it while he is still employed full time as long as he can afford it. John should seek the advise of a Florida mortgage broker and see if he can purchase his Florida home as a second home with a conventional loan. Second homes’s interest rates are almost the same as owner occupied home interest rates. John should consider getting a conventional loan versus a FHA loan because with a conventional loan, he can cancel his private mortgage insurance premium once his loan to value of his home is at 80% whereas with a FHA loan the mortgage insurance will be in effect throughout the term of the loan.
Private Mortgage Insurance on Home Purchase
If John can put down 20%, he does not need private mortgage insurance. John can get his second home with a 5% down payment. A larger down payment could mean a lower interest rate so if he can afford a larger down payment, it would be beneficial for him. John can then close on his Florida home. He can then retire and sell his house in Illinois. Once John gets the proceeds from his sale of his Illinois home, John can pay down his Florida home loan so his Florida home’s loan to value is at 80% to avoid private mortgage insurance.