For as long as you are of legal age, you can apply for a mortgage. But the question is, should you do it if, say you are in your 60s or even 90s? Is it wise to carry debt into your retirement?
When you’re okay with making monthly mortgage payments every month, it should not be a problem. But you have to prepare for this very important obligation, especially your retirement income for mortgage qualifying reasons.
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A Mortgage at Your Age
Whether you are getting your mortgage in your 30s or 60s, the process follows a similar route.
There is the appraisal of the property, your capacity to repay your loan, and your credit history. Your property must also meet the minimum property requirements set by the loan program you choose to get.
Lenders use a holistic approach in evaluating your overall creditworthiness and soundness of the loan.
They also have to look into your cash reserves and equity if you are refinancing or getting a reverse mortgage.
Of course, you have to shop and compare rates and terms to get the best home loan possible.
Your Mortgage, Your Income
An expected challenge for older borrowers is the verification of income, which may not be as easy as when you have your W2s.
Lenders want to see that you have enough income to support your loan obligation, together with your other recurring expenses, after your retire.
To avoid this situation, some borrowers take out mortgages before they retiring so it’s easier to document their earnings.
But if you are one of those planning to do so after retirement, you can use income from pension, Social Security, annuity, etc. to qualify for a mortgage.
If you are applying for a conventional mortgage conforming to Fannie Mae standards, you’ll need to submit copies of your retirement award letters, letters from organizations providing the income, copies of signed income tax returns, IRS W-2 or 1099 Forms, or proof of current receipt.
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If your income is from distributions in retirement accounts, e.g. 401(k), IRA, or Keogh, the lender must determine if such income is to continue for at least three years since the mortgage’s closing date.
The lender must also determine if you have unrestricted access to such accounts without penalty, using 70% of the value of distributions if in stocks, bonds or mutual funds to account for how much is left in those retirement accounts.
Freddie Mac, on the other hand, requires documentation of retirement income, its type, its source, frequency and predetermined payment amount. Copies of benefit verification letters, award letters, pay statements, Form 1099s, and other relevant documentation are required.
Retirement income distributions are excluded from these requirements. While a history of receipt is not required to deem the retirement income as stable, it should continue for at least the next three years.
For newly established retirement income, the first payment from such income must commence or be received prior to or on the due date of the first mortgage payment.
The FHA requires retirement income to be verified with the previous employer, Social Security Administration, or federal tax returns. The documented income must continue for the next three years, otherwise it will be considered as a compensating factor.
For its part, the USDA will consider retirement payments that have a history of receipt and will likely continue for the next 12 months as annual income.
The VA considers pension and/or retirement benefits as other sources of income. Veterans may have to show continued employment where they have no retirement income or their retirement income is not adequate to support their monthly loan obligations.
Getting a mortgage at your age should not be a problem if you know how and what to expect.Click to See the Latest Mortgage Rates»