If you are retired and want to buy a home, you may wonder how retirement impacts your chances of qualifying for a mortgage and what you can do to improve your eligibility.
The first thing to know is that under the Equal Credit Opportunity Act, no lender can legally refuse to offer you a mortgage based on your age. Nevertheless, lenders will still judge you by the same considerations that they would have used if you applied for a mortgage while in the workforce. That means that your income (or lack of income) remains a crucial factor in your eligibility.
Even if you are no longer pulling in money from a job, however, you still might be able to purchase a home with a competitive loan. Following are some recommendations to help you maximize your chances of approval.
Increase Your Home Loan Eligibility
- Maintain a High Credit Score. You may not have much control over how much money you are bringing in during retirement, but you might be able to take steps to raise or maintain your credit score. Just as your credit score was a key factor in qualifying for a home loan when you were working, it remains one now. Here are some quick recommendations for looking after your credit score: Order your credit reports and check their accuracy. If you find mistakes that are damaging your score, submit corrections. Keep your credit utilization low. Pay off outstanding debts if possible while staying current on other accounts. Sign up for Experian Boost if you are current on your utilities payments in order to have them considered in calculating your credit score. A high credit score can help to offset a lower income.
- Document Your Income and Assets. Even when you are retired, you still receive income in the form of social security payments. Depending on your situation, you may also receive disability benefits and/or a pension. Make sure that you have obtained the appropriate forms and letters to document all of these as income. Also, do not forget to include other, less common forms of income which you may have. Some examples include alimony, capital gains income, foreign income, income from other forms of public assistance, VA benefits and so forth. When you are retired, your assets may be a very important part of your mortgage application, likely far more so than when you were younger. Examples of assets that you can list on your mortgage application include: Cash in the bank, Stocks, Bonds, Retirement accounts and Mutual funds. Once again, it is not enough to simply have these assets—you must document them properly for them to be counted. Lenders are not simply looking at your assets as reserves; they may also be willing to consider them as income using the asset depletion method.
- Make a Large Down Payment. Another way that you can increase your chances of approval for a mortgage during retirement is to pay off a large percentage of the mortgage upfront. If you can afford to make a 20% or even 30% down payment, offering you a loan is less risky than if you were only willing to put down 5% or 10% (or less).
- Apply for a Type of Mortgage with More Relaxed Qualification Criteria. One more idea for making it more likely that you will qualify for a home loan is to apply for a type of mortgage where the eligibility criteria are more lenient to begin with. For example, if you are a veteran, applying for a VA mortgage is likely going to be your best bet. Not only are at the qualification requirements relaxed, but there is no down payment requirement, no PMI required, and many other benefits. If you do not have this option, another type of mortgage to consider is an FHA loan. Like a VA mortgage, an FHA mortgage is insured by the government, making it less risky for lenders even if you do not have an ideal credit score or a high income. You might wonder if you would qualify for an FHA loan given that you are not a first-time homebuyer just starting out, but it is a myth that FHA mortgages are exclusively for borrowers shopping for their first homes. Even if you have owned a home in the past, you can purchase your home for retirement with an FHA loan.
Blue Square Mortgage Can Connect You with the Right Lending Product to Buy Your Home for Retirement
Qualifying for a home loan when you are retired means navigating some challenges that you might not have needed to deal with as an active participant in the workforce. Nevertheless, you may have some advantages on your side, such as a larger amount of assets accumulated over your lifetime.
Whatever your scenario, Blue Square Mortgage can help you to buy a home for retirement with a suitable home loan that will fit your budget during your golden years. Ready to begin? Please give us a call at (206) 352-6453 to schedule your consultation.