In this blog, we will cover and discuss on ways on how can you get a mortgage after retirement. Seniors can qualify for a mortgage after retirement using retirement income and/or other sources of income. Tens of thousands of seniors purchase homes for one or many reasons after retirement. Some need to downsize their homes, others move out of state to warmer climate destinations, and other want maintenance free living in senior communities and/or condominiums. You do not need a full time job to qualify for a mortgage after retirement. Senior homebuyers can qualify for a mortgage after retirement using retirement income and/or other alternative income sources.
Can Retirement Income Be Used For Mortgage?
Retirement income can be used to qualify for a mortgage only if the money from the retirement income is likely to continue for the next three years. Types of retirement income that can be use are social security income, disability income, 401k, Roth IRA, traditional IRA, pension accounts, and other types of retirement account. To qualify for a mortgage, you do not need to be employed. Retired folks can qualify for a mortgage as long as they can provide their ability to repay their mortgage. The retirement income needs to be proven that it will continue for at least three years after the date of the mortgage loan.
Can a 65 Year Old Senior Get a 30-Year Mortgage With Social Security Income?
There is no age that prevents someone to get a home purchase and/or refinance a mortgage loan. Under the Equal Credit Opportunity Act, lenders cannot discourage or prevent borrowers from obtaining a home mortgage based on their age. However, lenders will need borrowers to prove their ability to repay the home loan by documenting qualified income. Retired borrowers with social security income can qualify for a mortgage without a job and with only social security income.
Can Social Security Income Be Grossed Up For a Mortgage For Seniors?
Social Security Income can be used for mortgage qualification. If someone is on social security income, lenders will allow borrowers to gross up the monthly social security income. HUD, allows senior borrowers to gross up social security income by 15% on FHA loans. For example, if a borrower on social security income is receiving a monthly income of $1,000 from Social Security, we can modify the $1,000 gross monthly income by an additional $150 per month or 15% to reflect the borrower is making $1,150 on FHA loans. With conventional loans, non-taxable income can be grossed up by 25%. The grossing up method is an extreme help in qualifying borrowers on social security income.
Mortgage After Retirement Due To Downsizing With Social Security Income
A large percentage of Americans decide to downsize to a smaller home when they retire or when their children leave the home and are on their own. Many times they choose a smaller home but a more expensive home because it might be waterfront or golf course frontage. Even though borrowers 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. There are options and creative ways of obtaining a mortgage for those planning on retiring.
Government Versus Conventional Mortgage After Retirement
Government-backed loans are mortgages that are guaranteed by the federal government. Private lenders originate, process, and fund government-backed mortgages. The government agency only acts as a mortgage insurer and not a lender. Government loans are only for one to four-unit residential owner-occupant mortgages. Home buyers of second homes and investment properties cannot qualify for government loans. You can only qualify for second homes and investment homes with conventional and non-QM mortgages. However, if you do not have a primary home or are exiting a primary residence, you are eligible to qualify for a primary home purchase after you retire as long as you can provide documentation. Here are the three government loan programs in the United States:
- The United States of Housing and Urban Development (HUD) is the parent of The Federal Housing Administration and is in charge of FHA loans
- The U.S. Department of Veteran Affairs (VA) is in charge of VA loans
- The U.S. Department of Agriculture Rural Development (USDA) is in charge of USDA loans
The above government agencies are not lenders. Their role and function are to guarantee home loans originated by banks and lenders in the event homeowners default on their loans. The bank or lender that originated and funded the loan will get compensated for their loss by borrowers who defaulted on their government loans.
Can Someone Who Is Retired Get a Conventional Loan After Retirement?
Many retired borrowers want to avoid getting an FHA mortgage after retirement because they do not want to pay the hefty FHA upfront and annual mortgage insurance premium. Fannie Mae and Freddie Mac set the agency mortgage guidelines on conventional loans. You cannot qualify for mortgages on second homes with FHA loans. Government-backed loans are for primary owner-occupant homes only. Conventional loans are for primary homes, second homes, and investment properties. Conventional loans are home loans that are not insured nor guaranteed by the government but are mortgages originated and funded by banks and lenders and sold to Fannie Mae and/or Freddie Mac. In order for Fannie Mae and Freddie Mac to purchase conventional loans, the mortgages need to conform to Fannie Mae or Freddie Mac’s Mortgage Guidelines. Home Buyers can purchase second homes and investment properties with Conventional loans.
How Difficult Is It To Get a Mortgage When You Are Retired?
A frequently asked question by retired borrowers is how difficult is it to get a mortgage when you are retired. Many retired homebuyers prefer to qualify and get approved for a home purchase after retirement with a conventional loan to avoid FHA mortgage insurance premium. FHA loans have a one-time 1.75% upfront FHA mortgage insurance premium and an annual 0,85% annual FHA mortgage insurance premium for the life of a 30-year fixed-rate FHA mortgage. Conventional loans only require private mortgage insurance only if the borrower has greater than an 80% loan-to-value and/or are putting down less than a 20% down payment on a home purchase. The private mortgage insurance cancels if the borrower has at least a 80% loan-to-value on conventional loans. As long as you have a 620 credit score and can validate your income through traditional means and/or retirement income, it is not difficult to get approved for a conventional loan after retirement. Retired homebuyers can qualify for owner-occupant and/or second homes with a conventional loan. You can gross up to 25% of your social security income on conventional loans versus 15% gross-up on FHA loans.
Can A Retired Borrower Have Two Primary Residences?
Retired borrowers can only have one primary owner-occupant home at the same time. If a homeowner has a current home and has not yet retired yet but is shopping for a new home, that home needs to be bought as a second home. If the homebuyer is planning on buying a primary home when they retired in another state and is planning on renting out the current home, they can buy their future primary home as an owner-occupant home. However, if the homebuyer who is planning on retiring has not yet retired and has no date when they will retire, they need to buy the second home as a second home and not a primary home. This holds true even though the home buyer intends on occupying the second home purchase as a primary home at a later date. On the other hand, if the homebuyer has already retired and intends on exiting their current primary residence when they sell it or keep it as a rental, they can definitely buy the home they plan on living as a primary home as an owner-occupant home.
Second Home Purchase With Social Security Income
Retired homebuyers can purchase a primary residence home with social security income. Non-taxed social security income can be grossed up to 15% on FHA loans, and 25% on conventional, VA, and USDA loans. What this means is if senior homebuyer only gets social security income, they can qualify for more money due to being able to gross up their tax-exempt social security income. For example, if a borrower gets a $1,000 monthly tax-exempt income, the borrower can gross up to $1,150 or 15% on FHA loans. Retired homebuyers can gross up to $1,250 per month or 25% on conventional, VA, and USDA loans.
Creative Ways of Getting Mortgage After Retirement
There are creative ways of going about financing a home for homebuyers who are planning on retiring but are currently employed. Let’s take a case scenario. Let’s assume retiree John is planning on retiring to Florida in several months. However, he wants to purchase a home when he moves to Florida and not rent. 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 advice of a Florida mortgage broker. John should see if he can purchase his Florida home as a second home with a conventional loan.
How Much Down Payment Is Required For Getting Mortgage After Retirement
Second homes’ interest rates are almost the same as owner-occupied home interest rates. Under Fannie Mae Guidelines On Second Homes, second home mortgages require a 10% down payment. John should consider getting a conventional loan versus an FHA loan. This is 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 an FHA loan the mortgage insurance will be in effect throughout the term of the loan.
Is Private Mortgage Insurance Always Required?
If John can put down 20%, he does not need private mortgage insurance. With Conventional loans, any down payment of less than 20% requires private mortgage insurance since they are not insured by the government. John can get his second home with a 10% 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 the 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. There are no pre-payment penalties on government and conventional loans.
Understanding The Mortgage Process When Buying A Home After Retirement
Understanding the mortgage process is important when buying a home after retirement. Maybe a home buyer may want to purchase a home prior to officially retiring due to being able to use their income. Social security and pension income can be used as qualified income when qualifying for a mortgage.
Many homebuyers can purchase their home cash using their pension investment accounts. As long as the person is at least 59 ½, withdrawals from retirement accounts such as a 401(k) or IRA count as qualifying income. Borrowers who have substantial liquid assets and/or investments can use those investments to qualify for asset depletion mortgage loans.
Dale Elenteny of Gustan Cho Associates is the asset-depletion accounts manager. Dale said the following with regards to asset depletion mortgage loans:
To qualify for asset depletion mortgage programs, the borrower needs significant assets. No income tax returns are required. Therefore, monthly income from employment does not matter.
Government And Conventional Loans
Lenders want to see qualified income when qualifying for government and conventional loans.
The following income types are considered qualified income when buying a home after retirement:
- Social security income
- Pension income
- Royalty income
- Child support and alimony income if the income is likely to continue for the next three years
- Other documented income that will likely continue for the next three years
Tax-free social security and pension income can be grossed up 15% on FHA loans and 25% on conventional loans.
Using Alternative Financing When Buying A Home After Retirement
As mentioned earlier, borrowers with substantial assets can explore our asset depletion mortgage program. Gustan Cho Associates are experts in helping borrowers qualify for our asset depletion mortgage program. Income tax returns are not required. No income documentation is required with our asset depletion loan program.
Another program we have for self-employed borrowers is the bank statement loan program. 12 and 24 months bank statement deposits are averaged and used as the monthly income. Withdrawals do not count. Only deposits count. There are no income tax returns required on our bank statement loan program.
Creative Ways Of Qualifying For A Mortgage Prior To Retirement
Some homebuyers who want to purchase a home after they retire want to apply for a mortgage prior to retirement. This is a great idea to apply for a mortgage while they are still on their job prior to retiring. However, make sure that you do not give notice to your company that you are retiring. The reason is one of the questions lenders will ask your current employer is what are your chances of being employed for the next three years. If you already have given notice to HR that you are retiring, your company’s HR will not tell the lender that your likelihood to be employed for the next three years is likely. If you are planning in purchasing your retirement home while still working, then you can qualify for a second home mortgage with a 10% down payment. Second homes require a 10% down payment.
The Best Lenders For Fast Approval on Mortgage After Retirement
Home buyers can qualify for a mortgage after retirement with no stress with the team at Gustan Cho Associates. Senior homebuyers can qualify for a mortgage after retirement with social security income. The team at Gustan Cho Associates are experts in helping seniors with getting approved for a mortgage after retirement. Homebuyers looking to qualify and get approved for a mortgage after retirement can contact us at Gustan Cho Associates at 800-900-8569 or text for a faster response Or email us at gcho@gustancho.com to see if they qualify. We are available 7 days a week, on evenings, weekends, and holidays.
