Oct 2, 2023
Finally! You made it to retirement. And can now enjoy the perks of freedom, which may include moving closer to the kids, escaping to warmer climes, or downsizing.
And if you’re looking to buy a house, you might wonder if you can still land a 30-year mortgage when your age is north of 60.
The short answer: absolutely!
Luckily, whether you’re 25 or 70, lenders look only at certain numbers when reviewing a mortgage application. Those numbers aren’t age but rather a borrower’s income, credit score, assets, and debts.
When you’re retired, though, landing a 30-year mortgage can be more complicated. So here’s what older borrowers should know about income qualifications before applying for a mortgage.
Older homebuyers and mortgages
Older borrowers are protected by something called the Equal Credit Opportunity Act, which means mortgage lenders can’t deny their applications based on age.
“The ECOA is a federal law that protects consumers from discrimination when they are applying for credit, which includes mortgages,” says Christy Bunce, president of New American Funding.
And while age can’t be used against older borrowers, age-related factors—namely, income streams—come into play when applying for a mortgage.
While retirees might have a stellar credit score, they typically don’t have a steady paycheck. And even if you have a sizeable nest egg of investments, proving you have a sustainable income can be daunting when you’re retired.
So let’s take a closer look at how lenders quantify the top three typical assets of older borrowers.
1. Retirement income
The most common sources of income for retirees include pensions, Social Security, and disbursements from retirement accounts, such as an IRA or 401(k).
And if you’re an older borrower, you can secure financing by documenting that your income source from a pension or retirement account is consistent and will continue to be so for three years or more.
But what if you haven’t dipped into your retirement account yet?
Then you can start payments to use as proof of income if you are at least 59 and a half. For example, a retiree could set up a monthly withdrawal of $5,000 from an IRA to be recognized as a monthly income.
“Retirement disbursements can be used as income as long as there is enough money in the asset account to last for three years,” says Jason Lerner, vice president at George Mason Mortgage. “You will need a letter from your financial planner or a representative from the account holder to prove you have enough money in the account.”
2. Passive income
You can also prove your ability to cover a monthly mortgage bill with passive income.
This type of income typically comes from investments, properties, or side hustles, but you’ll need to track the funds you receive.
“If the applicant is relying on passive income, such as rental income or investments, the lender will want to see proof of income from those sources,” says Bunce.
For example, suppose you’re a landlord collecting rent on a property you own. The income generated must have been reported on your yearly income-tax returns and have been stable or consistent for the past two to three years, for a lender to recognize it as income.
3. Investment income
So what if you’re not taking disbursements on your investments? Or if the distributions from your retirement accounts aren’t enough to qualify you for the mortgage you want?
You might be able to use a nonretirement investment portfolio as income.
This method, called asset depletion, allows a borrower to qualify based on their total assets rather than actual monthly income.
“This can be a perfect tool for a retired borrower without a consistent source of income,” says Lerner. “The borrower does not need to receive any cash, and their asset will not be depleted.”
Instead, you’ll need to round up bank statements and stock portfolio reports to go this route. Given the ups and downs of the stock market, most lenders will consider only 70% of the investment portfolio as eligible assets and divide that figure by 360 months to determine income throughout a 30-year mortgage.
“Borrowers may also need to provide proof of down payment, as well as a credit report demonstrating your ability to repay the loan,” says Bunce.
Find a lender who works with retirees
No matter how old you are, getting a mortgage with competitive rates and terms is a top priority. But when you’re retired, there’s something else to consider when shopping for the best mortgage lender.
“Borrowers should look for lenders willing to provide flexible payment options and who have programs that can help retirees with their unique financial situation,” says Bunce.
And keep in mind that retired borrowers are still eligible for programs that require little or no down payment.
“The loan officer should understand the needs of the borrowers and provide examples to help them pick a down payment amount that best meets their needs,” adds Lerner.