Getting A Mortgage After Retirement
It may seem like a nearly impossible task to get a mortgage after retirement, but there are ways you can do it even if you are not employed.
Income from a regular or part-time job
A brokerage account or retirement savings
Transfer payments like Social Security and your pension
Invested assets
Household income (income from non-borrowing household members)
Asset depletion method: If you have a lot of invested assets, the lender will calculate their current aggregate value and will subtract the amount for the down payment and closing costs. 70% of what remains will then be divided by 360, which is the number of months' payment on a 30-year mortgage.
Drawdown from retirement method: If you're at least 59 1/2 years old, you can use documents or receipts that verify your recent withdrawals from retirement accounts.
Credit score: The typical requirement of lenders for a credit score is usually 780; a score that's higher than that can increase your chances of getting approved. And if you ever fall short on other factors, such as debt to income ratio, a good credit score just might save your application. Also, if your score is higher than that, you could also get a better interest rate.
Debt to income ratio: Your debt is comprised of car payments, credit card minimum payments and your total projected house payment which includes interest, principal, property taxes and insurance. Other things like alimony and child support are also included in it. The debt to income ratio is expressed as a percentage, and is computed by dividing your total monthly debt by your gross monthly income. The safe percentage among lenders is generally considered to be 43% or lower, but maximum DTI still varies per lender. The ideal is 36%, and with no more than 28% going into paying the mortgage.
House expense ratio: Your housing expense ratio is the sum of your housing payments such as the potential mortgage principal and interest payments, property taxes, mortgage insurance, hazard insurance, and association fees. It's computed by dividing the sum of those by your pre-tax income. Just like the DTI, it is expressed as a percentage and is ideally not to exceed 36% of your income.
Post-closing liquidity: Your lender would also want to see your available liquid assets after closing, and they usually require that you have assets that could cover at least 6 months' worth of housing expenses. This is calculated by adding up all of your verified financial assets and then subtracting the closing costs and equity for the loan.
VA loans: If you're a veteran or a military spouse, VA loans offer 0 down payment and low interest rates.
Reverse mortgage: Also known as the Home Equity Conversion Mortgage (HECM) for purchase program, it is a kind of loan that can delay repaying the mortgage (principal or interest) until the house is sold or until the death of the borrower.
