How to Get a Mortgage if You're Retired

With retirement comes a whole new world of possibilities; you could travel the world, find new hobbies, spend time with family and friends, or buy a new home. But undertaking a new mortgage can be a risky venture if you’re unprepared. Luckily, age isn’t a restriction but there are other things to consider when applying for a mortgage.

When applying you need to show a reliable source of income, a good credit history, some amount of debt, and assets. Reliable income can be complicated for people who are currently retired and not receiving regular paychecks. But there are other options available to you.

Social Security is one of the incomes you can list -- this will never expire if it’s yours but if your spouse wants to use it they need to prove that it will last for at least three years. Your retirement or pension is another form of income that won’t expire, however, some will decrease in value for spouses. Annuities can be used as long as they will last for at least three years. The last thing you can list is your 401K or IRA, but use caution when using these because if you are too young and withdraw money you will be charged a fee. Lenders will also only count 70% of a 401k or IRA as income if it contains stocks, bonds, or mutual funds.

The type of loan and the length of term are also important to consider when applying. A traditional 30-year mortgage may not work for everyone but it can be handy for paying off the debt over time.

Home Equity Conversion Mortgage (HECM)

Another popular loan for seniors is the Home Equity Conversion Mortgage (HECM) for Purchase. This is a type of reverse mortgage that is made for people 62 or older but it can help with buying a new home. The way it works is you pay a down payment on the house you want (using savings or the money from selling your old house), then lenders calculate the equity of the down payment plus the value of the new home to get the amount for the loan. HECMs make it so you don’t have to worry about paying off your mortgage right away, instead, you pay back the loan and interest upon selling, moving, or the death of the borrower. While you still need to make payments on taxes and HOA fees, an HECM can help get you into a new house quicker.

Additional: Do reverse mortgages put people at risk for losing their home?

Buying a new home is a big step and it requires a lot of preparation, especially if you are heading into retirement. Whether you are downsizing, moving to a new community, or finding somewhere that better suits your needs, you should talk with a financial advisor. They can explain the mortgage options that best fit your situation and create a budget that accounts for future expenses. Retirement is what you have been working towards, don’t let a pesky thing like a mortgage keep you from getting your dream home.

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