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What to Know About Qualifying for Retirement Mortgages

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If you want to buy a house after retirement, there are a number of retirement mortgages to choose from. In fact, most standard loan programs offer mortgages for seniors on Social Security, retirement income or other types of income without proof of employment.

What are retirement mortgages?

Retirement mortgages are home loans for retired borrowers that don’t require proof of a job or standard income documents like pay stubs and W-2s. There is no age requirement for a home loan unless you’re getting a reverse mortgage.

To get a reverse mortgage, also called a home equity conversion mortgage (HECM), you’ll need to be at least 62 years of age. With other types of retirement mortgages, you must prove you’ve reached the legal age to receive Social Security or other retirement income. However, lenders are prohibited from age discrimination based on the Equal Credit Opportunity Act.

What types of retirement mortgages are offered?

Although lenders may not specifically call them retirement mortgages, mortgage companies follow special guidelines related to retirement income set by Fannie Mae, Freddie Mac and government-backed FHA, VA and USDA loan programs. There are also unique programs that allow you to convert assets to income if you don’t receive retirement pay from traditional sources like pensions or Social Security.

Conventional mortgages

Government-sponsored enterprises Fannie Mae and Freddie Mac fuel the housing market with 3% down payment mortgages for retired borrowers. For seniors who can make a 20% down payment, there’s no mortgage insurance requirement (mortgage insurance protects lenders against losses if you can’t make your payments and the lender forecloses).

FHA loans

Loans backed by the Federal Housing Administration (FHA) allow retired borrowers to qualify with credit scores as low as 500 and 10% down payments. With a 580 credit score, the down payment is only 3.5%. However, FHA mortgage insurance is a required expense regardless of your down payment.

VA loans

Getting a VA loan when retiring is easier for eligible military borrowers to buy or refinance a home with no down payment or equity and flexible DTI ratio guidelines. Although the guidelines for loans backed by the U.S. Department of Veterans Affairs (VA loans) don’t set a minimum score, VA-approved lenders often require at least a 620 minimum. VA loans also don’t require mortgage insurance, but VA lenders may charge a funding fee to offset the cost of the program.

USDA loans

If you’re looking to retire in a rural area outside the city, a loan guaranteed by the U.S. Department of Agriculture (USDA) doesn’t require a down payment and is designed for low- to moderate-income borrowers. The home must be in a USDA-designated rural area, and borrowers pay an upfront and annual guarantee fee instead of mortgage insurance.

Asset depletion loans

Retired borrowers with a high net worth may opt for retirement mortgages that allow the conversion of their assets to income. For example, if you have a $1 million investment account with your bank, they may offer you a 20-year mortgage and use your asset balance to give you $4,166.67 per month of qualifying income ($1,000,000 divided by 240 months = $4,166.67).

Bank statement loans

If you aren’t able to document income on your tax returns but receive regular large deposits from royalties or a business buyout deal, lenders offering bank-statement programs can use deposits for the last 12 to 24 months as qualifying income.

Reverse mortgages

If you’re at least 62 years of age and have at least 50% equity in your home, you may convert that equity to income in a variety of ways with a reverse mortgage. The biggest benefit: You don’t make a payment on the loan balance and are only responsible for monthly property taxes and insurance on your home. We’ll discuss reverse mortgages in more depth later.

How to qualify for retirement mortgages

Applying for a mortgage if you’re retired is the same as applying for a mortgage with a regular job. You need to meet the same basic credit and down payment requirements, but document your income based on the type of retirement income(s) you receive.

Below is a breakdown of acceptable retirement income types, and the documents your lender will need to qualify you for a mortgage.

Type of income Documents needed Specific guidelines
Social Security
  • Social Security award letter
  • Proof of recent receipt
  • Social Security survivor benefits also require proof you’ll receive the income for three more years
Supplemental Social Security Income (SSI)
  • Social Security award letter
  • Proof of recent receipt
Retirement, pension or government income
  • A statement from company providing income
  • A copy of the retirement award letter or benefit statement
  • A bank statement showing the income deposited into the account
  • Signed federal tax returns
  • IRS W-2 or 1099 form
401(k), IRA or Keogh retirement income
  • Same conditions as above
  • Must also confirm the income will continue at least three years.
  • Must have unrestricted penalty-free access to all accounts
Dividend and interest income
  • Two years of tax returns showing receipt of income
  • Copies of account statements verifying balance
VA benefits income
  • Letter from VA confirming income
  • Verification the income will continue for at least three years
  • Not required for VA retirement income or long-term disability income
Long-term disability income
  • Proof of eligibility for income
  • How much and how often the benefits are paid
  • Confirmation there is no end date to receipt of the income

How non-taxable income helps you qualify for retirement mortgages

When you’re applying for a home loan with regular income, lenders use your gross income (before taxes and deductions) to qualify you. However, if your retirement or Social Security Income is non-taxable, it may be “grossed up.”

For example, if you receive $2,000 per month of non-taxable income, a conventional lender can add an amount equal to 25% to the non-taxable income, which gives you an extra $500 to qualify. Here’s how it works:

  • $2,000 non-taxable income
  • $500 gross-up ($2,000 x .25% = $500)
  • $2,500 of grossed up qualifying income ($2,000 + $500 gross up = $2,500)

Lenders will ask you for award letters, tax returns or other documents to verify your income’s tax-free status.

Using a reverse mortgage in retirement

A reverse mortgage allows you to use your home’s equity to create an income source, a line of credit or a combination of several options. With a reverse mortgage you can:

  • Take a lump-sum payment to pad your cash reserves and secure a fixed rate
  • Choose regular monthly payments for however long you or our spouse live in the home as your primary residence
  • Pick a set number of months you want to receive monthly payments
  • Select a line of credit and use the funds as you need them
  • Combine a line of credit with a monthly payment for as long as you own the home
  • Add a line of credit to a monthly payment you receive for a set time period

FAQs about retirement mortgages

Can a retiree get a mortgage?

Yes, as long as the income meets the guidelines outlined above.

What is the age requirement for a house?

There is no maximum age requirement for a home. However, there is a minimum age requirement of 62 if you’re applying for a reverse mortgage.

Can you get a mortgage with only Social Security?

Yes. As long as you can verify recent receipt of it and an award letter confirming your current award amount.

Can you get a mortgage with no job?

Yes. A job is not required to qualify for retirement mortgages.

Can you buy a house while on SSI?

Yes. However, if you are receiving survivor benefits, you must also prove you’ll get the income for the next three years.

Are retirement mortgage interest rates higher than regular rates?

No. Interest rates for retirees are based on the same factors as any other mortgage.

 

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