You may need a mortgage after retirement if you plan to relocate, downsize, or eventually move into your ideal house. Those on a fixed income, however, may find it difficult to qualify for a home loan. Nonetheless, creditworthy homebuyers can acquire a new home using income from retirement accounts and other investments.
Suggestions that might be helpful to follow, if you’re retired and considering a mortgage.
1 – Check Your Credit Score
If you’re getting ready to retire, you probably have a solid credit history. Check your credit score before applying for a mortgage after retirement so you know what to expect when you apply. Knowing your score ahead of time also allows you to make adjustments before speaking with a lender.
2 – Calculate Your Post-Retirement Income
When applying for a mortgage, a homebuyer’s income is another crucial consideration. Lenders normally want two years of income documentation when reviewing a mortgage application. If you retired more than two years ago, though, sending copies of your W-2s may not be as simple. You’ll have to present proof of Social Security, pension income, dividends, and interest payments instead.
3 – Your Debt-to-Income Ratio should be checked.
Your debt-to-income (DTI) ratio is the percentage of your gross monthly income divided by all of your monthly loan payments.
Looking for Alternative Financing
If you have a non-retirement brokerage account and are having trouble qualifying for a standard mortgage, you may be able to borrow against it. The amount you can borrow against the value of an asset is determined by the lender. Clients of Schwab, for example, may be able to borrow up to 70% of their qualified assets.
Keep in mind that, unlike mortgages, this financing arrangement often has shorter loan maturities (sometimes as little as five years) and higher interest rates. So, if you follow this route and wish to cut your monthly payment or rate, you’ll have to refinance it later with a mortgage.