If you’re retired or have plans to move after you retire, you may wonder if it will be difficult to qualify for a mortgage. The answer is that while it may be a challenge, it’s certainly possible. Here’s everything you need to know about getting a home loan as a retired borrower.
Your Debt-to-Income Ratio Matters
Your debt-to-income ratio is your monthly debt payments divided by your gross monthly income. This figure helps lenders determine how likely you are to repay a mortgage. In most cases, lenders like to see a debt-to-income ratio of no more than 43%, sometimes 50%. The issue is that when you retire, your monthly income drops and causes your debt-to-income ratio to increase significantly.
Two Conventional Programs Can Help
If you have a high debt-to-income ratio but would like to qualify for a mortgage, there are two underutilized conventional programs by Fannie Mae and Freddie Mac you should consider. Since it can be a challenge to take advantage of them, however, you may want to work with a senior level broker or loan officer. Here are several details on each program.
An annuity offers a guaranteed income stream for a specified amount of time. If you’re of retirement age and can access your 401k or IRA retirement funds without paying any penalties, you can set up a monthly annuity. The money you receive may help you qualify for a mortgage, as long as there are three payments left.
Let’s say you arrange an annuity of $10,000 per month. The minimum balance is $360,000 so you can use the monthly $10,000 payment as qualifying income.
Asset depletion calculates monthly income by dividing your total assets by a set number of months. You won’t have to cash in your assets as they’re only considered to show your ability to pay your mortgage. It’s a good option if you’re a retired borrower with a high net worth.
With asset depletion, you take 70% of the outstanding balance in a typical investment account. Then, you divide that number by 360 (if you’d like a 30-year loan) to prove you can make all of your scheduled payments.
Imagine you have an investment account with $4,000,000. Seventy percent is $2,800,000. Once you divide $2,800,000 by 360, you’re left with a qualifying income of $7,777 per month. In this scenario, you won’t need much documentation and can expect a smooth closing.
Contact SBC Lending Today
If you’re a retired homeowner in need of a mortgage, we’re here to help. Our friendly, experienced team can help you qualify for the perfect home loan and navigate the intricacies of home ownership as a retiree. Call (866) 504-6444 or contact us online today for more information.