Though starting retirement without a mortgage is the best case scenario, there may be any number of reasons why you’ll want to apply for a home loan after you retire. Perhaps you discover the 50+ community you moved into isn’t really a good fit for your lifestyle. Or, maybe you hit the road to RV around the country for a year and now you’re ready to set down roots again. The big question: will you qualify for a mortgage after you retire?
How Lenders Consider Your Streams Of Retirement Income
As a federal employee, your retire income includes:
- Your monthly FERS annuity (pension)
- Your Social Security retirement benefit
- Distributions from your Thrift Savings Plan (TSP)
- Private sector retirement accounts like a 401k (yours or your spouse’s)
- Plus income from other investments like annuities
Your Social Security and FERS annuity (pension) score high with lenders because they’re guaranteed income for life. Since investment income from your TSP and 401k can fluctuate based on the stock market, they don’t hold as much value for lenders. Each lender has its own guidelines to determine your ability to pay a mortgage. That’s why it’s wise to work with more than one to secure the best loan terms.
“To be in the best position, enter retirement as debt-free as possible.”
Calculate Your Debt-To-Income Ratio (DTI)
Your debt-to-income ratio is a factor because retirees are generally considered a higher risk by lenders. Yet another reason to pay down your high-interest credit cards during your working years. To be in the best position, enter retirement as debt-free as possible.
Your DTI is a formula that calculates how much of your monthly income goes toward making payments on debt including your housing expenses, student loans, credit cards, auto loans, and loans you’ve co-signed for someone else.
Calculate Your Total Housing Expenses (PITI)
Housing expenses include the mortgage principal and interest plus property taxes and insurance. Also include HOA fees, utilities, maintenance costs, and other monthly expenses related to the purchase of your home. The formula used to calculate total housing expenses is called the PITI. Most lenders require a PITI lower than 28% of your total income.
Other Factors That Lenders Consider
Getting approved for a mortgage on your primary residence is more likely than getting approved for a mortgage on a beachside vacation home. Then there’s your credit score. In general, lenders look for a credit score of 620 or more. Last but not least, the amount of your down payment also helps to secure approval for a home loan.
