While some homeowners downsize their homes when they retire, others want to move and obtain a new mortgage. You may also find that it's a great time to refinance for better rates or a lower monthly obligation. But lenders want to see stable sources of income no matter whether you work or draw from retirement. How can you design your retirement income to appeal to a home loan lender? Here are a few ways.
1. Long-Term Annuities. Because many American workers no longer have access to guaranteed pension payments, annuities have taken up some of the slack. Look for an annuity with a long-term horizon so that its term extends at least three years past the length of the mortgage you want.
2. Rental and Passive Income. Rental units can be a great addition to your mortgage application. This is because you have monthly expected income to include, but it's also a long-term asset that doesn't have an end date. Prepare records of your rental (or other passive) income and expenses for the past several years or as long as you've owned it before applying for a mortgage.
3. Pension Checks. Are you one of the lucky Americans who still works for a public or private company that offers pensions? If so, you have a generally guaranteed source of income which is often for your lifetime — and sometimes even for a spouse's. If you have the choice between a lump sum and monthly checks, your lender may find the payments a better guarantee.
4. Retirement Accounts. Many people use private retirement accounts as one of their primary retirement income sources. These are trickier for lenders, as there are no complete guarantees when withdrawing from an account that will lose value and may have volatile investments. Give yourself a safety buffer by considering only a portion of the capital for your loan application. Ask the lender for the percentage of its value they use.
5. Social Security. Like pensions, Social Security checks can be ideal for lenders if payments will continue until death. However, limited-time benefits like survivors or spousal benefits should only be relied on if their term extends past the mortgage term. Depending on how much you need to qualify, you might also consider waiting to file so that your monthly income is higher for life.
Where Should You Start?
Although it can be more complicated, qualifying for a home loan during retirement is possible. Begin by meeting with a mortgage lender in your state today, such as University Federal Credit Union.
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