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How To Get A Home Loan After You Retire
Dated: December 1 2020
How To Get a Home Loan After You Retire
It's no secret that Florida has long been a popular destination for retirement living, especially the Tampa Bay area, with its miles of sandy white beaches, the beautiful Gulf of Mexico, mild climate, outdoor activities galore, and more. Recently, US News & World listed the 25 Best Places to Retire. Not only were 13 of those 25 places located in Florida, but Tampa Bay was ranked in the Top 25 as well. While many may dream of retiring at the beach, the matter of financing a life of retirement is also something to consider.
Not everyone can afford to buy the home they’ll retire in with cash, so getting a mortgage is often a topic that comes up when we’re working with home buyers who are also retired. Getting a mortgage loan during your retirement years can make the home-buying process feel brand new all over again!
With mortgage rates at record lows (under 3% at time of publication), there’s even more incentive to use a mortgage to purchase a home right now, even if cash is an option. While getting a mortgage during your retirement is possible, it does come with its own set of unique challenges.
See below for tips on how to do it:
Check Your Credit- No matter what your age or job status, your credit score will play an important part when it comes to getting qualified for a mortgage after you’re retired. Just like with any loan, your credit score will determine what kind of interest rate and loan program you can qualify for. Home buyers with credit scores of 740 or higher are able to get the very best mortgage rates. If your credit score needs some work, we recommend taking a few months to pay down your debts, correct any errors on your credit report, and make on-time payments to get it higher.
Improve Your Debt-to-Income Ratio- Lenders will often require a debt-to-income ratio of 43% or less to qualify you for a mortgage loan. This means your monthly payments cannot exceed 43% of your current retirement income. To calculate your debt-to-income ratio (DTI), simply add up all your monthly payments (credit cards, car payments, loan payments, etc) and divide them by your total monthly income. Then multiply that number by 100 to get the percentage. For example, if your monthly retirement income is $5000 and your total debt payments come to $1500 per month, divide 1500 by 5000 to get .30. Then when you multiply .30 by 100, you get 30% for your debt-to-income ratio. You can use a simple mortgage calculator to calculate specific mortgage payments and add to this formula to see just how much you can afford to stay within the 43% guidelines.
Verify Your Retirement Income- For a lender to qualify you for a mortgage in retirement you need to show them that you have consistent, taxable income. The amount of money you have in the bank is not the same as showing a lender you have a consistent stream of income each month (think social security payments, pension funds, IRA & 401k distributions, etc) to pay back your mortgage loan over time. The key here is the word ‘consistency.’ Lenders don’t want to see a large trust fund or a 401k you occasionally draw from as needed. What they want is to see regular, scheduled distributions that can support you (and pay down that loan!) over time. A good strategy to start now if you’re thinking of buying a retirement property in the next 6 months to a year would be to start taking static, routine distributions starting now. Doing this will make it much easier for a lender to get your loan application approved.
Consider the Down Payment Required- Depending on your current debt-to-income ratio, you might need a larger down payment than when you last purchased a home when you had a larger income from a full-time job. The smaller the loan you have, the less your debt-to-income ratios will grow, making it more likely that you’ll be able to stay within the debt-to-income guidelines your lender requires.
Get Your Financial Paperwork in Order- Your lender will need copies of your most recent bank statements, proof of your last 2 social security payments, and copies of 401k disbursements, and possible your tax returns as well. Be sure to get these in order sooner rather than later to prevent any delays once your file goes to underwriting.
Lastly, once you’re ready to shop for your retirement dream home, don’t forget to also shop for the best loan rate. We always recommend speaking to 2-3 lenders to make sure you’re getting the best loan for your current financial situation.
Have more questions about buying a home or condo to retire in around the Tampa Bay and Gulf Beaches areas of Florida? Don’t forget you can always call us at (727) 400-3315 to speak with our team. We’re here to help you with all your real estate goals, regardless of the stage of life you’re in now. Call us today to get started.
Andrea is the Managing Partner of The Sandy Hartmann Group and runs the team alongside Sandy Hartmann. She would love to talk to you about real estate! Andrea was born and raised in the Tampa Bay a....
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