Retirement Lending: Where and How to Get a Mortgage as a Retired Individual
For many retired individuals, the concept of obtaining a mortgage can seem daunting. However, being retired does not automatically disqualify you from securing a mortgage. With the right approach and the right lender, you can find a loan that fits your needs. In this article, we will explore the best strategies for getting a mortgage as a retired individual and the benefits of using a loan broker.
Understanding Retirement Lending
Many retirees believe there are special rules or restrictions against lending money to individuals with fixed income. While lending institutions cannot discriminate based on age, certain requirements still must be met, especially when it comes to verifying a steady stream of income. Traditional loan guidelines, set by Fannie Mae and Freddie Mac, require a 2-year income history for most loans, unless it's newly started guaranteed income with a demonstrable likelihood of continuation for 3 years.
Benefits of Using a Loan Broker
So, the question arises: where should retired individuals go to acquire a mortgage? A good loan broker can be a valuable asset. Unlike traditional banks, brokers have access to a wider array of lending options, including those that may be elusive to banks. These loan brokers can provide financing for individuals with low credit scores or other credit issues, making it easier to secure a mortgage.
Fixed Income and Mortgage Requirements
For those receiving fixed income, such as a pension or Social Security, verifying the monthly income is crucial. While the standard debt-to-income (DTI) ratio is commonly used to determine eligibility, there are several alternative methods to assess your financial situation. Here are a few scenarios to consider:
1. Pension and Social Security
If you are receiving income from a defined benefit pension plan or Social Security, you can add these monthly payments together to assess your eligibility. For instance, if your Social Security benefit is $1,500 and your pension is $1,000, your total income is $2,500, allowing you to afford a mortgage payment of up to $1,125. However, if this income is not sufficient, the next steps might be necessary.
2. Fixed Income Plus Passive Income
Additionally, you can include passive income sources, such as rental income. If you have $2,500 in income from your pension and Social Security, and your rental income is $2,000 (net on your tax return), your total income increases to $2,025. This additional income can make a significant difference in your eligibility for a mortgage.
3. Asset Depletion Method
For those with liquid assets in 401(k)s or IRAs, these assets can be counted as income. By calculating potential income from these assets, even if you are not currently taking it, you can use the asset depletion method to increase your eligibility. This is particularly useful for those with no steady income.
Reverse Mortgage Option
If traditional mortgages are not feasible, you may consider a reverse mortgage. This is a loan that allows you to convert a portion of your home equity into cash, and it can be a viable option for those who do not qualify for other mortgages or do not wish to make monthly payments.
Choosing the Right Lender
As a retired individual, your best bet for finding the right mortgage is to work with a highly reputable mortgage broker or banker. These professionals can match you with the best option based on your unique financial situation and can offer the flexibility and access to a wide range of lending programs that traditional banks may not provide. By partnering with a loan broker, you can explore all available options and find the loan that best fits your needs.
Conclusion
To sum up, obtaining a mortgage as a retired individual is not as challenging as it might seem. With careful planning, the right lender, and a solid understanding of your financial situation, you can secure a mortgage that meets your needs. Whether you are receiving fixed income, have passive income, or rely on liquid assets, working with a loan broker can help you navigate the process and find the perfect mortgage solution.