We recently caught up with Emily Bort of OPES ADVISORS and had a conversation about clients we may have who are near retirement, and how that affects their mortgage.  We both agreed that when our clients retire, they often downsize or relocate (hopefully some where sunny and warm). To reach their retirement goals, many will still want to get a mortgage to finance their next home. While they likely have experience with taking out a mortgage, there are important differences they should know about getting a loan once they’re retired.

Are you close to retiring? Here are answers to 6 questions you might have about qualifying for a loan when you retire:

Q1: What types of retiree income will lenders consider?

A: If your clients have one or more of these common income types for retirees, they may be able to use them to qualify for a mortgage with documentation to support current receipt and 3 years duration of the income: Social Security benefits, pension payments, or regular distributions from qualified retirement accounts (IRA, Annuity, 401K).

Q2: Does income from investments, such as stock dividend payments and rental real estate help us qualify?

A: That depends. Interest and dividend income used to help qualify for a loan must be verified with a steady history for at least two years and assets to support the likeliness of continuance. Rental income from real estate typically requires a 2-year history and current rental agreement with the tenant.

Q3. If we plan to rent out a room in our home, can that income help us qualify?

A: Airbnb reports that seniors (60 years old or more) are the fastest-growing segment among their hosts. Such income can be a boost in retirement, but may not be usable for loan qualification if the home is zoned for single-family use. The income will also have to qualify as in #2 above. Be sure to advise your client to consult with their lender and tax professional for more information.

Q4: If we downsize and sell our primary residence, how much tax will we owe?

A: The first $250,000 ($500,000 for married couples filing jointly) in profits from the sale isn’t taxable. Advise your client to consult a tax professional for more information.

Q5: Are there any government-sponsored loans for retirees?

A: Freddie Mac, the government-backed housing finance giant, started allowing lenders to consider retirement-account assets a few years ago, helping retirees qualify for larger loans.*

Q6: Does our retirement status put us at a disadvantage when qualifying for a loan?

A: Actually, most loan applicants over 65 have good credit and less debt than younger Americans. That can work in their favor when the lender calculates their maximum debt-to-income (DTI) ratio, which helps determine how much they can borrow. Also, the Fair Housing Act of 1968 prohibits discrimination of borrowers on the basis of age.
All considered, once retired, income from employment has ended, which can make loan qualification more challenging. Advise your clients that it is best to plan in advance and work with their mortgage advisor to help shape their future plans for home and retirement.

More questions?

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