Can I get a mortgage if retiring?

[Wenonah]

I am retiring this month, but I may try buy an underpriced rental home. I have the assets in the bank to buy it, but if I want to get a mortgage, can I? Of course, the credit union where I started the process wants my paycheck stubs. August is my last paycheck. Should I tell them I am retiring or just apply OR will they give me a loan based on my assets? Thanks.

[rich126]

I'll be curious as well. From what I've seen, sure you can get one, but it is easier when you are still employed.
The article below discusses the topic.

https://www.thebalance.com/how-to-get-a ... ed-2388738

[TIAX]

Banks understand that people lose their source of income and price their mortgages accordingly. No need to let the bank know what the plans are.

[RickBoglehead]

You are not required to disclosure your upcoming retirement, UNLESS they ask.

As to asset-based lending, most will look at the INCOME currently generated by the assets, not the assets themselves.

Asset depletion rules were put into effect some years ago, but good luck finding a banker that has a clue. I made a half dozen inquiries, and most had no knowledge of them.

https://www.freeandclear.com/programs/a ... rview.html

[wolf359]

My parents and my wife's parents have both gotten mortgages after retirement. It's probably easier while you still have a job, but getting one after the fact isn't impossible, either.

My parents have pension income and social security, plus investments. My in-laws have social security and rental income. Both sets of parents made substantial down payments, so they had lots of equity in the house. Both could also afford to buy the houses outright.

[jimb_fromATL]

I am retiring this month, but I may try buy an underpriced rental home. I have the assets in the bank to buy it, but if I want to get a mortgage, can I? Of course, the credit union where I started the process wants my paycheck stubs. August is my last paycheck. Should I tell them I am retiring or just apply OR will they give me a loan based on my assets? Thanks.

It's been a few decades since I had a mortgage, but way back then I had to submit proof of employment and prospects for it to continue.

From what I've read more recently, you'll still need to submit information about your employer, and the lender will verify it by calling or writing the employer. They will verify the contact information through third party sources, not just from the borrower. Then in the underwriting process, they're likely to verify your employment again within just a few days of closing.

So ... IMO you need to disclose that you're retiring, and get the loan loan based on your assets -- such as any pension, 401(k), IRA, and social security income.

I've also recently read that HUD and other lender guidelines typically include requirements such as that

• "... the borrower’s effective income should be “reasonably likely to continue through at least the first three years of the mortgage.”

I suspect that your credit union does too.

Here's some information about VOE (Verification Of Employment) from Wikipedia

• "...Once a mortgage has been approved and the borrowers have signed their mortgage documents, a Verbal Verification of Employment (Form 90) is conducted with all current employers prior to funding the loan. This is done to ensure that the borrower has not stopped working since the application was submitted, which would influence the terms on which the loan was approved..."

Sounds like they do care if you're going to stop work. I'd guess that you probably also have to sign an affidavit certifying that you do expect to have that income for the required two or more years.

If you do decide to fudge on the application, even by by omission, do be aware that lenders -- and the law -- take mortgage fraud very, very seriously.

I suspect that about the only thing likely to happen is that you would be turned down for the loan if you got caught fibbing, or perhaps might have to pay a higher down payment and/or higher rate for a loan that is more risky for the lender. But the fact that the penalty for mortgage fraud can be up to a million bucks and 30 years in the slammer suggests that they are not all that good at taking a joke.

A few more thoughts:

Where are the funds coming from? In general it would NOT be a good idea to take the funds out of any tax-advantaged or tax-deferred retirement plans, since the extra taxes from tax-deferred plans and the loss of compound interest on all the money that is no longer tax-advantaged could be a lot more than the interest would be on a mortgage.

Even taking a big chunk of money out of a taxable account that has existed for a long time could result in long term capital gains taxes that are more than the interest might be on a mortgage. And again, the loss of compound interest on the taxes and after-tax money that is no longer in the investment could be more than the mortgage interest.

However, if you do have the cash in liquid assets without severe tax consequences, another option might be to pay cash for the home, then take out a home equity loan to get some of the money back to use for other things or to reinvest. (Or to use for living expenses so you can defer having to take money out of retirement accounts any sooner than RMD time if you're younger than age 70.)

How much money are you talkin' about to buy the home?
Where is the money that you could use to pay cash?
How old are you?

jimb

[michaeljc70]

I know this information is sometimes verified closer to closing. If you are approved, I'd read the conditions carefully. If they verify employment after you're gone but before closing it will be a problem.

[delamer]

No direct, personal experience, but it is my understanding that asset depletion mortgages are more likely to be available through portfolio lenders.

You can do an internet search to find portfolio lenders in your area.

[LadyGeek]

This thread is now in the Personal Finance (Not Investing) forum (mortgage).

[marielake]

I am retired and recently got a mortgage. Have a small pension and social security. Interest rate, with excellent credit rating, was higher than average (4.875).

[Bogle_Bro]

I'm a lender at one of Chase/wf/boa.

... Written over 200 conventional mortgages in the last 12 months...

Written Zero asset depletion loans. Very hard to get those done. Need several million to even have a shot.

For a conventional investment property loan you need 20% down and debt to income ratio most likely under 45%

[Bogle_Bro]

I know this information is sometimes verified closer to closing. If you are approved, I'd read the conditions carefully. If they verify employment after you're gone but before closing it will be a problem.

The problem is mortgage fraud

You are not required to disclosure your upcoming retirement, UNLESS they ask.

But they would be retiring before the loan closes

[Wenonah]

Thanks everyone, for your honest and experienced replies. It sounds like I need to be honest and see what happens if I decide to do it, or just buy it outright. It's for $238,000. I appreciate the help.

[michaeljc70]

I know this information is sometimes verified closer to closing. If you are approved, I'd read the conditions carefully. If they verify employment after you're gone but before closing it will be a problem.

The problem is mortgage fraud

You are not required to disclosure your upcoming retirement, UNLESS they ask.

But they would be retiring before the loan closes

I think that's right. I haven't looked through past loan documents, but I recall signing something at closing verifying that everything on the loan application is correct and that would include your employment status.

[Cruise]

OP, I am just in the process of applying for a mortgage. My banker and his team have indicated that the amount in our investment accounts really does not matter. They want to see current income, so they are looking at my wife's salary, an annuity stream, and our SS income.

[Texgal17]

. OP,
I retired in July 2016 and got a mortgage in November 2016 with 20% down payment. The mortgage lender wanted to see my income, which was my pension, and TSP investments. I had no trouble qualifying and got a 3.5% rate. I also had minimal debts and excellent credit score. YMMV......Good Luck!

[abuss368]

I am unsure and I have wondered about this as well. I am interested in this thread.

[michaeljc70]

OP, I am just in the process of applying for a mortgage. My banker and his team have indicated that the amount in our investment accounts really does not matter. They want to see current income, so they are looking at my wife's salary, an annuity stream, and our SS income.

Yep. I paid cash for my house because I was working freelance and they said I didn't have a long enough history being self employed (I've worked freelance for 20+ years, but sometimes it is on a W2 and sometimes a 1099). When I applied for the mortgage, I said "but I can pay cash for the house." He said it didn't matter if I could buy 10 of them with cash. The conforming mortgage rules are outdated and really geared toward people with full time jobs and severely undercount investments/savings. Of course, I could blow all my savings or my investments could tank. But a guy with a job could easily be laid off too and have little cushion.

[CULater]

I'm retired with most of my assets in retirement accounts and income from social security. Looking for a home equity loan (not a HELOC) of about $100K on a condo with no mortgage. Will the loan rate be affected by my retired status, in the same way that mortgage rate might be?

[MikeDun]

Lenders have to verbally verify employment 10 days before closing with your employer. Your employer might disclose pending retirement to them if they ask about "probabilty of continued emplyment" which depending on lender might be part of their questionnaire when doing verbal verification of employment.

[engineer1969]

I know this information is sometimes verified closer to closing. If you are approved, I'd read the conditions carefully. If they verify employment after you're gone but before closing it will be a problem.

The problem is mortgage fraud

You are not required to disclosure your upcoming retirement, UNLESS they ask.

But they would be retiring before the loan closes

Carrying this out to the most extreme case: If you consider most retire by age 70, is anyone starting a 30 year mortgage after 40 committing fraud?

[jimb_fromATL]

I know this information is sometimes verified closer to closing. If you are approved, I'd read the conditions carefully. If they verify employment after you're gone but before closing it will be a problem.

The problem is mortgage fraud

You are not required to disclosure your upcoming retirement, UNLESS they ask.

But they would be retiring before the loan closes

Carrying this out to the most extreme case: If you consider most retire by age 70, is anyone starting a 30 year mortgage after 40 committing fraud?

Not unless you lie about your age or employment or sources of income.

However, as I and others have mentioned earlier, part of the income verification process with employers typically include verification of a "reasonable expectation of continuing employment" or words to that effect ... for perhaps 3 years as required by many lenders and underwriters including FHA and HUD. And if you are anywhere near normal retirement age, it's a safe bet that the lender and underwriters are going to look more closely at your stated source of income that will be used to make the payments.

Incidentally, it is illegal to discriminate on a mortgage based on age alone. And lenders don't expect a loan to last more than about 3 to 5 years anyway. (Statistically, that has been the range before people are likely to move or refinance. It is also the range during which lenders expect to recoup the difference in interest for points paid up front to get a lower rate, and for perks like "no closing cost loans" where the closing costs are actually just hidden in a slightly higher rate.)

Something else worth mentioning, since the OP mentioned "rental property". For the lowest owner-occupied rates, most lenders and underwriters typically require some kind of affidavit or certification or reasonable expectation that the home will be occupied as a residence, too.

So ... if you are planning to retire immediately, as in the OP's case, or if you're at or near retirement age, not only is the lender going to look very closely at your income and assets, if they learn that you fibbed about your plans to live in it yourself for a few years, chances are pretty good that they'll have actual proof of fraud or intent to commit it.

As I opined earlier, they're not going to throw you in the slammer for the 30 years or fine you the max of a million bucks for fibbing on the mortgage application. They will probably turn you down if they catch it in time -- such as at the last minute follow-up verbal income verification process with your employer.

If it's caught later -- such as during a review of underperforming loans after rates have gone a lot higher -- then they are probably more likely to use that proof of fraud or intent as a reason to call the loan due in full immediately. But more likely they would just require that it be recast to a higher rate to reflect the higher risk. In some cases of a high LTV ratio they might also require more cash to raise the stakes for the borrower and reduce the risk for the lender. . (My guess is that it is a lot easier to convince someone to agree to a proposal when the prospects of up to 30 years in jail and a million dollar fine can be used as a persuader.)

The prospects for having a loan that was made at lower owner-occupied rates called due if you convert to a rental are indeed real, too. I've participated in several consumer talk forum discussions of cases where it has actually happened since the crash of the real estate market.

It is NOT likely to happen as long as the payments have been made on time all the time, and IF the rate is within range of current mortgage rates, and if the lender does not know about it. And I know of lots of people who have converted their homes to rentals with no consequences at all (at least so far). The most likely way it is discovered by lenders appears to be during the review of income, assets, and liabilities when the homeowner is applying for a mortgage for their next residence while they still have the old one.

IMO it is also a lot more likely to be caught during lenders' normal risk management reviews now that rates are going up pretty fast. In fact after the last major crash of the real estate market the comptroller of the currency issued a directive that many lenders should review their portfolios for under-performing or higher-risk loans that may no longer be eligible for the lower owner-occupied rates because they were converted to rentals.

jimb

[delamer]

I'm retired with most of my assets in retirement accounts and income from social security. Looking for a home equity loan (not a HELOC) of about $100K on a condo with no mortgage. Will the loan rate be affected by my retired status, in the same way that mortgage rate might be?

Interesting question. I don’t know the answer, but I assume if you are viewed as a bigger risk then it could affect your rate.

[willthrill81]

Thanks everyone, for your honest and experienced replies. It sounds like I need to be honest and see what happens if I decide to do it, or just buy it outright. It's for $238,000. I appreciate the help.

There are far worse things than to de-leverage your finances when you enter retirement.

Having no mortgage on a rental property will improve your cash flow significantly. That's a nice silver lining.

[Yooper16]

Spouse retired in 2011. I went parttime in 2015, and stopped working totally in April 2016.

End of May 2016 sold our previous house.

Mid- June took out a mortgage with a local credit union 400 miles away from previous address. 20 year at 3.125

Easy-peasy.

[Yooper16]

OOPS double post.

[remomnyc]

I looked into this before I retired. Wells Fargo offers an asset depletion loan with a maximum loan amount equal to 1/3 of assets. The rates my banker offered me were identical to the conforming and non-conforming mortgage rates. He told me to go ahead and retire even if I hadn't found a home to buy yet.

[jayoco]

Hi.

We retired 2 years ago at 48 years old. 2 months ago we moved to Cary, NC. Can you get a mortgage while retired?

YES.

We closed on a new home 6 weeks ago. I'm not sure I can name the bank on the forum but they were great. PM me if you want the name. I opted for
a 5/1 ARM at 3.5% (I'm one of those folks who think we're A LOOONG way from seeing interest rates rise meaningfully).

Cheers.

[brokendirtdart]

OP, Thank you for this thread as it is also something I am concerned about. Especially as I have never purchased a house before.

My situation is I will retire from the military in a couple years and move to a state where I have visited but not lived before. Because of this, my initial "home" will likely be a rental so I can figure out where I want to buy. I will be fully retired from the military by then. While I will have income from my military retirement, maybe a part time job, and have taxable investments I can use, I would prefer to finance after a down payment.

Anyhow, thanks for the topic and the responses of the posters here. I bookmarked this so I can keep checking.

[jimb_fromATL]

OP, Thank you for this thread as it is also something I am concerned about. Especially as I have never purchased a house before.

My situation is I will retire from the military in a couple years and move to a state where I have visited but not lived before. Because of this, my initial "home" will likely be a rental so I can figure out where I want to buy. I will be fully retired from the military by then. While I will have income from my military retirement, maybe a part time job, and have taxable investments I can use, I would prefer to finance after a down payment.

Anyhow, thanks for the topic and the responses of the posters here. I bookmarked this so I can keep checking.

Your pension income will count in qualifying for a mortgage. You also have a potential advantage in being able to qualify for a VA mortgage with as little as $0 down.

Without knowing anything about your rank, income, and years of service or which of several retirement plans might apply, how much income you'll have, or how much you might want to spend, here's a general example of how it could work:

• For a home selling for $175,000 with 0% down the balance to finance would be $175,000. Perhaps 2.% closing costs ($3,500 makes a total of $3,500 due at closing -- plus prepaid proportions for the first partial month's interest and escrow for taxes and insurance.
  
  At perhaps 4.25% for 30 years the payment for P&I would be $861 per month. Adding perhaps 1.5% of the home's value for taxes and insurance ($219 escrow per month) would give you a total payment of $1,080 per month. Allowing perhaps 1% of the home's value for annual maintenance and repair expenses would add another $146 per month you'd need to be able to set aside. That's a total of about $1,225 per month to own the home, and that's before you heat it cool it and furnish it.
  
  At the normal guideline of about 28% DTI (debt to income) ratio for the home for non-VA loans, and if the lender does not count the maintenance allowance, the $1080 per month ($12956 per year) for PITI would require an income of about $3,856 per month, $46,270 per year to qualify for the loan.
  
  However, since a pension does not include the 7.65% FICA tax, and a military pension is about as dependable as any income can be, the VA will guarantee loans up to about 41% of gross income -- provided that still leaves you enough income to live on.
  
  So under VA guidelines, with a 41% debt to income ratio for the home, and if the lender does not count the maintenance allowance, the $1080 per month ($12956 per year) for PITI would require an income of about $2,633 per month, $31,599 per year to qualify for the loan.

The bigger the down payment you make, the lower the balance to finance and the lower the payment, and the lower your income would need to be to qualify for the loan. For example:

• For a home selling for $175,000 with 10% down ($17,500) the balance to finance would be $157,500. Perhaps 2.% closing costs ($3,150 makes a total of $20,650 due at closing.
  
  At perhaps 4.25% for 30 years the payment for P&I would be $775 per month. Adding perhaps 1.5% of the home's value for taxes and insurance ($219 escrow per month) would give you a total payment of $994 per month. d furnish it.
  At the VA guideline of about 41% debt to income ratio for the home, that would require an income of about $2,423 per month, $29,080 per year to qualify for the loan.

If you do plan to get a civilian job, that typically requires at least a year of employment before lenders will consider that income in qualifying for a bigger mortgage and a higher DTI ratio ... though having the certainty of a government pension and especially a VA loan guarantee will probably make it easier to get the loan anyway.

-- more --

Another thing to bear in mind is that once you get the mortgage, and assuming you have another job, you can save a lot of interest and have the home paid off a lot faster by adding extra payments to the principal. I've had two VA loans (a perk for my two years served as a draftee in the 60s) However instead of making the minimum payments, we paid them off in about 10 years each.

Since you already have a guaranteed income from your pension, with healthcare and cost-of-living increases, you don't need quite as much money in liquid assets for emergencies, and you don't need to set aside as much for additional retirement. So if you work elsewhere, you'll be in a great position to pay down the mortgage faster ... after setting aside a reasonable amount for more retirement, and having plenty of cash on hand in liquid savings to cover any emergency/unexpected expenses that might not be covered by your normal income.

If you do have money to spare, and after you are setting aside enough extra to enhance your retirement later, paying down the mortgage is a good investment, too. It gives you a guaranteed rate of return with no risk to the principal that is better than virtually any place else you can invest after-tax money. In fact, since you pay taxes on income in investments, but there is no tax on money you keep for yourself instead of paying it to somebody else, the equivalent rate of return is better than the mortgage rate itself.

Just as an example, with the typical 15% federal cap gains and perhaps 6% state tax totaling 15% tax on the gain, your $456 per month would need to earn a guaranteed average of roughly 4.84% after yearly taxes on dividends. I don't know of anything that currently gives you that much of a return absolutely guaranteed with no risk to the principal.

jimb

[brokendirtdart]

jimb

jimb

Thank you for taking the time to post that detailed and tailored to various common financing options post. It is the first time I have seen such a concise posting on this topic with clearly understood examples. Anticipate retiring as an E-9 with 28.5 years, so the high-3 pension will be decent. Those examples helped my understanding a lot. Thanks!

[serbeer]

I'm a lender at one of Chase/wf/boa.

... Written over 200 conventional mortgages in the last 12 months...

Written Zero asset depletion loans. Very hard to get those done. Need several million to even have a shot.

For a conventional investment property loan you need 20% down and debt to income ratio most likely under 45%

Interesting. Why do you call it "Zero Asset Depletion"? Never heard the term before. Zero would usually mean that no asset depletion is expected. Is it different from Asset Depletion loans? If so, what benefit is there in qualifying for the former vs later? Thanks!

[MP123]

I'm a lender at one of Chase/wf/boa.

... Written over 200 conventional mortgages in the last 12 months...

Written Zero asset depletion loans. Very hard to get those done. Need several million to even have a shot.

For a conventional investment property loan you need 20% down and debt to income ratio most likely under 45%

Interesting. Why do you call it "Zero Asset Depletion"? Never heard the term before. Zero would usually mean that no asset depletion is expected. Is it different from Asset Depletion loans? If so, what benefit is there in qualifying for the former vs later? Thanks!

I'm guessing zero = none?

Otherwise it would be a great deal!

[Bogle_Bro]

I'm a lender at one of Chase/wf/boa.

... Written over 200 conventional mortgages in the last 12 months...

Written Zero asset depletion loans. Very hard to get those done. Need several million to even have a shot.

For a conventional investment property loan you need 20% down and debt to income ratio most likely under 45%

Interesting. Why do you call it "Zero Asset Depletion"? Never heard the term before. Zero would usually mean that no asset depletion is expected. Is it different from Asset Depletion loans? If so, what benefit is there in qualifying for the former vs later? Thanks!

I'm guessing zero = none?

Otherwise it would be a great deal!

Yeah sorry for the ambiguity. I meant no one at the bank can get asset depletion loans done at all because the formula is weighed down by several catches and earmarks

[serbeer]

Got it--misunderstood your response, thanks for clarifying!

[TIAX]

Yeah sorry for the ambiguity. I meant no one at the bank can get asset depletion loans done at all because the formula is weighed down by several catches and earmarks

What are the catches/earmarks? Do you agree with them?

[Bogle_Bro]

Yeah sorry for the ambiguity. I meant no one at the bank can get asset depletion loans done at all because the formula is weighed down by several catches and earmarks

What are the catches/earmarks? Do you agree with them?

I hate the formulas because they make the program overly complicated and disqualify everyone except unicorns.

Let's say you have 5.15m in stocks and bonds today.

To be conservative, the bank starts the calculation by slashing that number by 30%.

Now you have 3.6m.

Then they divide that amount by 30 years (360 months) to calculate qualifying income , even if you want a 15yr loan.

So now you're down to 10 grand a month , or 120k yr.

DTI needs to be under 45%, or 4500/mo for our illustration.

Most folks with that many liquid assets have significantly higher than 4500 a month in total credit obligations and property expenses (hoa, inurance, property tax, mortgages)


In most cases you can't add asset depletion and regular cash flow income together, you have to choose. So no 10k penision & part time income + 10k asset depletion for 20k qualifying income... It's one or the other.


These rules have been similar at every bank I've worked for (major banks & small private lenders)

Credit unions are likely more flexible, though.

[jayoco]

Yeah...

During my process I found that some banks will look at the dividend and interest INCOME thrown off by the portfolio and use that to determine your eligibility.