The Answer may suprise you

Can You Get a Mortgage After You Retire?

There are a lot of things to think about when you’re getting ready to retire, but if you’re like me, whether you’ll be able to sell your home and get a loan to buy another home wasn’t really on my radar. I just assumed I would be able to qualify for a mortgage when the time came.

Then one of my clients had an experience recently that opened my eyes. Even though she owned properties and had cash assets, she couldn’t qualify for mortgage. Why? Because from the lenders’ perspective, she didn’t have enough income.

Once you retire, getting a mortgage is possible but it isn’t as easy as it was while you were working. In fact, for some people, like my client, it’s downright impossible. And yet, nobody tells you this before you retire.

In this column, I talk about what you need to consider if you’re planning to buy a home after you retire and why you may want to buy or downsize before you leave your job. Stick around until the end of the video to find out what you can do to ensure you don’t end up stuck in a home you no longer want to live in. And if you’re thinking of renting in retirement, check out my next video in this series where I look at the pros and cons of renting and owning in retirement.

Stable, Predictable Income

When we look at our own financial wealth, we tend to look at the whole picture together—savings, income, property, and other assets. But when a lender looks at whether you’re a good risk for a loan, they’re primarily interested in how much income you have coming in each month and if its sufficient to pay your mortgage and the rest of your expenses.

Lenders are looking for income that is what Fanny Mae describes as stable, predictable and likely to continue such as social security or pension income.

Retirement Assets May Not Count As Much As You Think

Lenders will consider distributions from 401(k)s, IRAs, and other types of retirement assets, but, because withdrawing from your retirement account depletes the value of the asset, it’s not treated the same as income. You have it, but you’re using it up.

You will have to show that distributions from your retirement accounts will continue at the same level for at least three years from the date of the mortgage. And lenders will only use 70 percent of the value as qualifying income if the assets consist of stocks, bonds, or mutual funds, because the value of those investments could decrease with market fluctuations.

Lenders may also consider income from investments, such as rental property, or income from annuities, provided the income from the annuity will continue for at least three years.

Your Current Home Isn't an Asset

Lender’s won’t consider the value your current home, even if you plan to sell the property after you purchase a new home, because it is not generating income. One of my regular lending partners, Mikal Knotek, senior mortgage banker at Bell Bank Mortgage, told me. “It’s actually a liability. You can’t liquidate it easily.”

In this market, some may argue that point, but that’s how lenders view it. And regardless, in this seller’s market, you don’t want to be writing an offer on your dream retirement home that is contingent on the sale of your current home. That isn’t a strong bargaining position.

Improve Your Odds

There are a few things you can do to make sure your retirement goes as planned. Much of the advice is similar to what any prospective homebuyer would get.

Make sure your credit rating is good. Make your payments on time, always make at least the minimum payment

Having a good credit score will help you qualify for a mortgage after you retire

 on your balance due, and address any credit issues you may have before apply for a loan.

Don’t cancel all of your credit cards when you retire. Having credit history is just as important in retirement as it was when you were a first-time homebuyer.

And perhaps the most important piece of advice, start planning for retirement a couple of years before you retire. If you intend to move or downsize from your current home, It is easier to qualify a mortgage while you’re still working and you still have time to address any gaps between the retirement you want and the retirement you can afford.

J Trout Lowen is a Minneapolis REALTOR® and an expert at helping homebuyers and sellers navigate the Twin Cities housing market.

Is now a good time to sell your home? In this blog, I walk you through three important questions to consider when deciding whether this is the right time to sell your home.

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