How Will Retirement Affect Our FICO score?

[freddie2011]

My husband retired last April at the age of 63. So far we have not yet filed for his SS, but I began taking my small benefit at age 62. He also receives a small pension. I haven't checked our FICO score since he retired -- it was over 800 before retirement, but now our income is only about a third of what it used to be. We had planned to buy a retirement home for cash sometime in the next couple of years, but with interest rates so low, we think it might be better to get a mortgage for at least half the price of the new home. Does anyone know how this drop in income will affect FICO? Nothing else has changed -- we have no debt and we have ample savings and investments.

[Bustoff]

My husband retired last April at the age of 63. So far we have not yet filed for his SS, but I began taking my small benefit at age 62. He also receives a small pension. I haven't checked our FICO score since he retired -- it was over 800 before retirement, but now our income is only about a third of what it used to be. We had planned to buy a retirement home for cash sometime in the next couple of years, but with interest rates so low, we think it might be better to get a mortgage for at least half the price of the new home. Does anyone know how this drop in income will affect FICO? Nothing else has changed -- we have no debt and we have ample savings and investments.

Hi freddie - we are in the same boat as you and your husband. We plan on relocating so we thought, let's see if our bank would give us a loan. We met with the mortgage lending supervisor and she told us our credit was outstanding. No surprise there.
We also informed her that we have no debt, own our home, currently collect a small pension, and have substantial savings, such that we could easily pay cash for the new house.
Then came the surprise. Despite all of the above, she told us it's not gonna happen. No loan!
She herself expressed frustration with the new lending standards because she would soon be in the same position when she retires. She went on to tell us that it's crazy that established retired folks with substantial assets can't get loans,when young couples with no work history get approved in a heartbeat simply because they have a job and income. They could lose their jobs the day after they get approved, but approved they get. The bank wants to see a guaranteed stream of income. What could be more guaranteed than a pension, it's more reliable than a job ! She said if we could document a regular steam of income in addition to the pension, we could probably get a loan if we make a substantial downpayment.

[Grt2bOutdoors]

Use your credit card - pay your bills on time. FICO is not determined based on income, rather timely repayment of bills and overall credit usage.

[Grt2bOutdoors]

My husband retired last April at the age of 63. So far we have not yet filed for his SS, but I began taking my small benefit at age 62. He also receives a small pension. I haven't checked our FICO score since he retired -- it was over 800 before retirement, but now our income is only about a third of what it used to be. We had planned to buy a retirement home for cash sometime in the next couple of years, but with interest rates so low, we think it might be better to get a mortgage for at least half the price of the new home. Does anyone know how this drop in income will affect FICO? Nothing else has changed -- we have no debt and we have ample savings and investments.

Hi freddie - we are in the same boat as you and your husband. We plan on relocating so we thought, let's see if our bank would give us a loan. We met with the mortgage lending supervisor and she told us our credit was outstanding. No surprise there.
We also informed her that we have no debt, own our home, currently collect a small pension, and have substantial savings, such that we could easily pay cash for the new house.
Then came the surprise. Despite all of the above, she told us it's not gonna happen. No loan!
She herself expressed frustration with the new lending standards because she would soon be in the same position when she retires. She went on to tell us that it's crazy that established retired folks with substantial assets can't get loans,when young couples with no work history get approved in a heartbeat simply because they have a job and income. They could lose their jobs the day after they get approved, but approved they get. The bank wants to see a guaranteed stream of income. What could be more guaranteed than a pension, it's more reliable than a job ! She said if we could document a regular steam of income in addition to the pension, we could probably get a loan if we make a substantial downpayment.

If you went to the bank and offered either a substantial down payment (50%+) or agreed to deposit a large amount in a collateral account (they essentially have a lien on the assets) you would likely get the mortgage. If not, pay in cash - why bother with a mortgage? BTW, a pension is not so reliable if the payments stop when the retiree dies or if the pension goes bust and the maximum payments insured by PGBC is less than the mortgage amount.

[bertilak]

From FICO's website:

What's not in my FICO Score

• Your race, color, religion, national origin, sex and marital status.
  US law prohibits credit scoring from considering these facts, as well as any receipt of public assistance, or the exercise of any consumer right under the Consumer Credit Protection Act.
• Your age.
  Other types of scores may consider your age, but FICO scores don't.
• Your salary, occupation, title, employer, date employed or employment history.
  Lenders may consider this information, however, as may other types of scores.
• Where you live.
• Any interest rate being charged on a particular credit card or other account.
• Any items reported as child/family support obligations or rental agreements.
• Certain types of inquiries (requests for your credit report).
  The score does not count “consumer-initiated” inquiries – requests you have made for your credit report, in order to check it. It also does not count “promotional inquiries” – requests made by lenders in order to make you a “pre-approved” credit offer – or “administrative inquiries” – requests made by lenders to review your account with them. Requests that are marked as coming from employers are not counted either.
• Any information not found in your credit report.
• Any information that is not proven to be predictive of future credit performance.
• Whether or not you are participating in a credit counseling of any kind.

(my underline)

[midareff]

Did not have an effect on mine, still 800+. Retired ten months ago and since financed a new car at 1.49% and have a 3.0% condo refi near closing. Use credit cards anyplace that takes them, and they are all cash back. Pay everything in full monthly except the folks who want to give me a year of no interest, they get used. Have not paid a credit card company a penny of interest as far back as I can remember, maybe 40 + years.

[Bustoff]

If you went to the bank and offered either a substantial down payment (50%+) or agreed to deposit a large amount in a collateral account (they essentially have a lien on the assets) you would likely get the mortgage.

Not true.

If not, pay in cash - why bother with a mortgage?

Lot's of reasons, especially if you're having a new home built. The bank will only disburse funds to the builder upon each stage of construction passing inspection.That's a huge safety factor for the home buyer.

BTW, a pension is not so reliable if the payments stop when the retiree dies.

Wrong again. Your employer won't release your pension without a survivor benefit.

... or if the pension goes bust and the maximum payments insured by PGBC is less than the mortgage amount.

Wrong, the chances of an individual losing their job and defaulting on a loan is much higher than a pension fund going bust beyond PGBC.

[Bustoff]

Did not have an effect on mine, still 800+. Retired ten months ago and since financed a new car at 1.49% and have a 3.0% condo refi near closing. Use credit cards anyplace that takes them, and they are all cash back. Pay everything in full monthly except the folks who want to give me a year of no interest, they get used. Have not paid a credit card company a penny of interest as far back as I can remember, maybe 40 + years.

I had no problem getting a car loan either. And a refi is easy because the bank already has you on the hook. The OP is talking about qualifying for a new mortgage. On a new mortgage app your credit score isn't the sine qua non. Income is more important, at least that's what we were told.

[The Wizard]

I'm retiring this year and have yet to encounter or worry about this, but I'm not at all worried.
I'll have a monthly income in retirement from my 403(b) in case I ever need to qualify for a loan again.
If I just had a big accumulation of after-tax investments and just withdrew funds from those as needed to live on, I can see why a bank might turn down a loan request...

[midareff]

BTW, a pension is not so reliable if the payments stop when the retiree dies.

Wrong again. Your employer won't release your pension without a survivor benefit.

Not true in this state. You select cash out, single person pension payment which is higher than survivor benefit, or married with survivor benefit.

[livesoft]

I have noticed two things that have dropped our credit score:
1. Paying off our mortgage
2. Those 1-year 0%-interest no-fee loans on our credit card

Another one that is mentioned in our report is "Not enough credit cards"

[sscritic]

BTW, a pension is not so reliable if the payments stop when the retiree dies.

Wrong again. Your employer won't release your pension without a survivor benefit.

Not true in this state. You select cash out, single person pension payment which is higher than survivor benefit, or married with survivor benefit.

What about ERISA?

P.S. Your quotes look all wrong. I think you quoted two people and lumped them together. Who said "Your employer"? You? Then why are you saying that you are wrong? No, you didn't lump two people together, you lumped another person with you. Oh, I guess you are a person, so you did lump two people together.

[Snow Boarder]

I am not retired yet so I don't have any real world experience with the topic.

But it seems to me like there is dissension in the ranks of the retirees on this one.

[rr2]

My husband retired last April at the age of 63. So far we have not yet filed for his SS, but I began taking my small benefit at age 62. He also receives a small pension. I haven't checked our FICO score since he retired -- it was over 800 before retirement, but now our income is only about a third of what it used to be. We had planned to buy a retirement home for cash sometime in the next couple of years, but with interest rates so low, we think it might be better to get a mortgage for at least half the price of the new home. Does anyone know how this drop in income will affect FICO? Nothing else has changed -- we have no debt and we have ample savings and investments.

Hi freddie - we are in the same boat as you and your husband. We plan on relocating so we thought, let's see if our bank would give us a loan. We met with the mortgage lending supervisor and she told us our credit was outstanding. No surprise there.
We also informed her that we have no debt, own our home, currently collect a small pension, and have substantial savings, such that we could easily pay cash for the new house.
Then came the surprise. Despite all of the above, she told us it's not gonna happen. No loan!
She herself expressed frustration with the new lending standards because she would soon be in the same position when she retires. She went on to tell us that it's crazy that established retired folks with substantial assets can't get loans,when young couples with no work history get approved in a heartbeat simply because they have a job and income. They could lose their jobs the day after they get approved, but approved they get. The bank wants to see a guaranteed stream of income. What could be more guaranteed than a pension, it's more reliable than a job ! She said if we could document a regular steam of income in addition to the pension, we could probably get a loan if we make a substantial downpayment.

Just curious -- I assume that they were using their pension income alone to qualify for the mortgage. With this income, was this person able to pass the front end and back end PITI ratio tests. Assets are usually not considered when determining the ability to repay mortgage. They are only important for down payment and for reserve funds.

[prudent]

Assets are usually not considered when determining the ability to repay mortgage. They are only important for down payment and for reserve funds.

Interesting. They won't lend based on money you ALREADY have, but they will lend based on money you might get someday (job income).

[EternalOptimist]

Unfortunately for us retirees, a think a big determinant of our ability to get a loan is how much we "earn" as in work income

[Grt2bOutdoors]

If you went to the bank and offered either a substantial down payment (50%+) or agreed to deposit a large amount in a collateral account (they essentially have a lien on the assets) you would likely get the mortgage.

Not true.
Perhaps in the case of the bank or mortgage broker you spoke to - the interesting thing about shopping - if you search hard enough, you can usually find something someone is willing to sell you. Shop around, you'd be surprised. There are thousands of banks to shop from.

If not, pay in cash - why bother with a mortgage?

Lot's of reasons, especially if you're having a new home built. The bank will only disburse funds to the builder upon each stage of construction passing inspection.That's a huge safety factor for the home buyer.
That's not the bank's problem!

BTW, a pension is not so reliable if the payments stop when the retiree dies.

Wrong again. Your employer won't release your pension without a survivor benefit.

Wrong on your part. In my state, if there is no next of kin, the pension can be taken as single life annuity, it stops when you stop breathing.

... or if the pension goes bust and the maximum payments insured by PGBC is less than the mortgage amount.

Wrong, the chances of an individual losing their job and defaulting on a loan is much higher than a pension fund going bust beyond PGBC.

Makes no difference, if I were a bank or a lender I'd take my chances on someone whose income stream has a strong possibility of growing over time and places a substantial downpayment down with a security interest in the property as opposed to a nominal depreciating pension that doesn't keep up with costs.

[Grt2bOutdoors]

Assets are usually not considered when determining the ability to repay mortgage. They are only important for down payment and for reserve funds.

Interesting. They won't lend based on money you ALREADY have, but they will lend based on money you might get someday (job income).

And why is that? - simple - "here today, gone tomorrow" - money can be spent/transferred unless you are willing to place said monies in a secured collateral account with said lender and give them a perfected security interest over your assets.

Funny, borrowers want the banks to take all the risk, yet they don't want to pay for it. Real estate is not that valuable when you can't sell it for what is owed.

[Grt2bOutdoors]

Did not have an effect on mine, still 800+. Retired ten months ago and since financed a new car at 1.49% and have a 3.0% condo refi near closing. Use credit cards anyplace that takes them, and they are all cash back. Pay everything in full monthly except the folks who want to give me a year of no interest, they get used. Have not paid a credit card company a penny of interest as far back as I can remember, maybe 40 + years.

I had no problem getting a car loan either. And a refi is easy because the bank already has you on the hook. The OP is talking about qualifying for a new mortgage. On a new mortgage app your credit score isn't the sine qua non. Income is more important, at least that's what we were told.

A car loan and a mortgage for a home purchase are two different animals. Do you know of any 10,15 or 30 year car loans? No, because the depreciable life of the car is much shorter. No lender in their right mind would ever offer such a product.
If you are getting a low or no interest rate loan, the manufacturer of the car is essentially discounting the purchase price - it's all built in, you have no such feature for a money purchase mortgage issued by a bank. The lender would have no problem repo'ing your car either if you didn't pay up. Not so with a mortgage, in many states you have to go to court to enforce it and in NY/NJ the wait can be as long as 2-3 years - that's right, 2-3 years of non-payment while the bank is on the hook for maintainance and taxes and anything else. Also, most car loans are for small amounts of money relative to a home purchase. The risk to the lender with car loans is the volume, if they all go bad at once and you can't resell without taking a bath on portfolio then you have a problem. The problem with real estate is the illiquidity and costs. Try throwing "granny" out of her house in a foreclosure - get the tv camera crew there and the mayor, talk about a pr nightmare.

[Default User BR]

Wrong again. Your employer won't release your pension without a survivor benefit.

Not true in this state. You select cash out, single person pension payment which is higher than survivor benefit, or married with survivor benefit.

At MyMegaCorp, married people have to get a signed release from the spouse to select single life annuity.


Brian

[gkaplan]

I don't know, and I don't care.

[freddie2011]

Thanks so much for all of your responses. I appreciate being made aware of the difference between FICO scores and getting approved for a mortgage. I guess I focused on the FICO so much because the last time we applied for a mortgage, the lender made a huge deal about our great FICO score, so I thought that was very important.

In our case, we did opt for a 75% pension survivor benefit for me, so I would still have 75% of that income in the event of my husband's death.

Having read the many, many posts regarding when to take SS, I wonder if some retirees take SS before 66 in order to boost their income for the purpose of qualifying for a mortgage. We haven't quite decided when to take my husband's SS and he was thinking that we would take it before 66 if it would help qualify for a mortgage. However, after reading through your responses, it looks like we may be back to our original plan of just buying a house outright. We'll still probably call a couple of lenders and if I can add anything new to this conversation, I'll post. Thanks again.

[btenny]

I got about the same answer you did but back in 2001 right before 911 on a new home loan while I still owned another home and had retired early. I had a great credit score and little income but much less than previously and way less than we were spending as we were taking regular savings withdrawals. The bank at the time told us assets were not counted when determining income to see if we could afford a loan. They wanted to see tax returns or similar data that showed them where we would get the money regularly to pay off the loan. Duh. I told them, the bank, I am taking this loan for tax and leverage reasons.

So they said great. We will make you a loan with a short term of say 15 years with higher interest rates or a 5/1 ARM loan or some other types like apartment loans with a balloon at 5ish years. I forget the details.

So we got a 5/1 ARM that had a slightly higher interest rate. Then we paid it off in 2-3 years as I recall.

I am pretty sure the same rules apply today but are a lot stricter. Get a ARM loan or a loan covered by assets or with a balloon at 5-7 years.

Good luck
Bill

[trudy]

My husband retired last April at the age of 63. So far we have not yet filed for his SS, but I began taking my small benefit at age 62. He also receives a small pension. I haven't checked our FICO score since he retired -- it was over 800 before retirement, but now our income is only about a third of what it used to be. We had planned to buy a retirement home for cash sometime in the next couple of years, but with interest rates so low, we think it might be better to get a mortgage for at least half the price of the new home. Does anyone know how this drop in income will affect FICO? Nothing else has changed -- we have no debt and we have ample savings and investments.

Hi freddie - we are in the same boat as you and your husband. We plan on relocating so we thought, let's see if our bank would give us a loan. We met with the mortgage lending supervisor and she told us our credit was outstanding. No surprise there.
We also informed her that we have no debt, own our home, currently collect a small pension, and have substantial savings, such that we could easily pay cash for the new house.
Then came the surprise. Despite all of the above, she told us it's not gonna happen. No loan!
She herself expressed frustration with the new lending standards because she would soon be in the same position when she retires. She went on to tell us that it's crazy that established retired folks with substantial assets can't get loans,when young couples with no work history get approved in a heartbeat simply because they have a job and income. They could lose their jobs the day after they get approved, but approved they get. The bank wants to see a guaranteed stream of income. What could be more guaranteed than a pension, it's more reliable than a job ! She said if we could document a regular steam of income in addition to the pension, we could probably get a loan if we make a substantial downpayment.

I had something similar happen when I needed a loan to bridge between selling my house and buying another on the other side of the country. (This was when the housing market was in good shape.) I was retired, good credit score, with significant assets that I didn't want to break into and went to I forget how many banks and got turned down because of no income. My ex sister-in-law was a broker for a firm that was owned by a big bank and she pulled some strings, or I apparently would not have gotten a loan.

As to the original question, my credit union has a free credit score once a month thing and mine is very good, despite being retired.

[trudy]

I have noticed two things that have dropped our credit score:
1. Paying off our mortgage
2. Those 1-year 0%-interest no-fee loans on our credit card

Another one that is mentioned in our report is "Not enough credit cards"

I have two cards, and my credit score is fine.

[l2ridehd]

I retired last year and later in the year decided to refinance my mortgage to a lower rate. I was originally planning to sell this home, but decided to stay living here another few years. (new grandson) I have excellent credit and enough liquid assets to pay all the mortgages 10 times over. During my working years I could get a mortgage in under one minute any time for any amount. I currently own four homes, one primary, one vacation and two rental properties. All have mortgages with under a 50% LTV.

I have never gone through such agony as I went through getting this refinance done. It had nothing to do with credit scores or assets. They didn't care that I could easily pay off all mortgages. They didn't care that I have always made all payments on time. They didn't care that the new mortgage would improve free cash flow by $300 a month. It was only about proven income. And my 3% SWR did not count as income. Only pensions, SS, and any other things I could show as income that was guaranteed to continue for 5 years. They would not even accept a seller financed property I sold as income. They wanted copies of leases on the rentals, verified retirement DB income, and more paper work then you can imagine. I will never again apply for a mortgage. I finally got it, but it was the most insane thing I have ever worked with. I was planning to buy a third rental property next year and mortgage it to the max, but I will not do it now. So there is a sale lost somewhere.

So a wise word to all. Before you retire and the paycheck stops, get all mortgages completed. If your planning to buy a retirement home after retiring and selling your current home, and want a mortgage? Buy it while still working. You can always pay down the mortgage after selling your home, but you may not get a mortgage with no pay check.

[rr2]

l2
Many thanks for posting your experience. The pendulum has indeed swung quite far from the heady days of NINJA loans to full income docs. You had the pension, SS, and two rental income streams. I would have assumed this would be sufficient if it met the front and back end PITI ratios.

[Bustoff]

I dug up my notes from our humbling encounter with the mortgage officer.
The figure is 45%.
The bank will lend 45% of documented income.

[RebusCannébus]

BTW, a pension is not so reliable if the payments stop when the retiree dies.

Wrong again. Your employer won't release your pension without a survivor benefit.

Actually, not wrong again. I just retired from a large corporation. I'm married and could have taken a single annuity (with no survivor benefit). I chose otherwise, but the option was available, the only condition being that I had to have my spouse sign off on my taking a single annuity. I chose not to do so precisely in order to mitigate the risk cited by Grt2bOutdoors.

[katsmeow]

h. It was only about proven income. And my 3% SWR did not count as income. Only pensions, SS, and any other things I could show as income that was guaranteed to continue for 5 years.

That seems unusual. We recently obtained a mortgage. DH is retired. I do have some part-time income. However, they most certainly did include DH's withdrawals from his IRA as income. He has no pension. He has SS and IRA withdrawals and I have some part-time income. We had to show that the withdrawals were systematic withdrawals set up with Vanguard. In our case, we showed this by sending copies of our statements showing the $X had been withdrawn monthly. In our case, that had been occurring for over a year. The broker indicated that there are Fannie Mae guidelines on all this and what has to be shown. He said that there had to be at least enough money in the IRA to cover 3 years of withdrawals. Also, he indicated that in the past they had wanted to see withdrawals already having occurred for a period of time (maybe a year? don't recall) but that recently (this was in late 2012) this had lightened up.

What we had to provide was the statements showing the systematic withdrawals and a written explanation. Had no trouble being approved.

Another option for some people might be an asset depletion loan which is based upon depleting assets over a period of remaining life expectancy.

[FrugalInvestor]

Use your credit card - pay your bills on time. FICO is not determined based on income, rather timely repayment of bills and overall credit usage.

This has been our experience since retiring about 10 years ago. We haven't had need for additional credit but use our cards to buy everything (for air miles and discounts) and pay them along with all other bills on time as we always have. When I've seen our credit score since retirement it has continued to be high.

[prudent]

The way it sounds, if you were retired with $500,000 in the bank you would get turned down, but if you bought a SPIA with that money you would get approved because you had an income stream.

[burt]

Good topic, which I've been pondering for a while. I plan to put 50% down on a retirement home and mortgage the remainder. Sounds like I should be buying the retirement home a few months prior to leaving the workforce. Will that plan work ?

burt

[freddie2011]

[quote="burt"]Good topic, which I've been pondering for a while. I plan to put 50% down on a retirement home and mortgage the remainder. Sounds like I should be buying the retirement home a few months prior to leaving the workforce. Will that plan work ?

burt[/quote]

We actually planned to buy a retirement home before my husband retired but some unexpected medical issues made it inconvenient for him to continue working. We had to postpone our our planned relocation because we wanted him to be treated by the excellent specialists he has in this area. This has turned out to be the best decision for us, but we are sorry that we may have to jump through a few more hoops if want to try to get a mortgage.

[stemikger]

My husband retired last April at the age of 63. So far we have not yet filed for his SS, but I began taking my small benefit at age 62. He also receives a small pension. I haven't checked our FICO score since he retired -- it was over 800 before retirement, but now our income is only about a third of what it used to be. We had planned to buy a retirement home for cash sometime in the next couple of years, but with interest rates so low, we think it might be better to get a mortgage for at least half the price of the new home. Does anyone know how this drop in income will affect FICO? Nothing else has changed -- we have no debt and we have ample savings and investments.

I haven't read all the replies, but I side with Dave Ramsey on this. In retirement, you should not borrow money and keep risk out of your life. So therefore, a FICO score should not matter. If you really think about it a FICO score is an "I love debt" score.