Can I get a mortgage after retirement?

Dear Liz,

I retired about six months ago and plan to sell my home and move. I am concerned about getting approved for a mortgage since I am no longer working. I have income from a 401(k), a pension, Social Security, and an annuity. My credit is excellent. Will I be able to get a mortgage?

Gennifer, Oklahoma

Dear Gennifer,

If you have the income to make a mortgage payment, you should have little trouble being approved. Retired folks who have the most trouble are generally those who quit their jobs but then start second careers as self-employed people. If they need that income to qualify for home loans, they have to wait a couple of years before underwriters will consider it.

Lowest mortgage rates require documentation

In your case, your income is independent of the health of the economy or an employer. That stability can work to your advantage. Here are four things you will need to provide to get the best mortgage rate:

1. Social Security: Provide a copy of your award letter showing the amount paid each month or two months of bank statements showing that you are receiving benefits. If you've been drawing Social Security for more than a year, you could just provide your W-2 form or your signed tax return.
2. Pension: Present a letter from the organization paying the money, showing the amount you will receive each month, or two months of bank statements showing receipt of the funds.
3. Monthly distribution from 401(k): Mortgage lenders need a copy of your account statements and paperwork showing the amount of your monthly distribution, whether it's a note from your investment firm or two months bank statements showing the deposit. The underwriter needs to be sure that your distribution will continue for at least three years to count it as income.
4. Annuity: Supply a copy of the terms of the annuity, including payment commencement, distribution amount and duration. If you've already annuitized, bank statements can confirm receipt of funds.

How much income do you need?

In general, lenders like to see housing expenses (principal, interest, property taxes, mortgage insurance, HOA fees, etc.) kept to 28 percent or less of your gross (before tax) income, and they prefer that all of your bills--home loans plus car payments, credit cards, etc., total no more than 38 percent of your gross income. A mortgage affordability calculator can help you determine how much you can borrow. That said, other factors like the size of your down payment, the amount of your investments, and your credit rating affect how much mortgage lenders are willing to let you borrow.

Another alternative--the reverse mortgage for purchase

One option available if you don't have the cash or credit rating to qualify for a traditional home loan is a reverse mortgage. You can use reverse mortgages to purchase new homes, and you'll have no mortgage payment. So, for example, if you received $100,000 from the sale of your old home, you could (depending on your age) buy a property for $200,000 with a reverse mortgage and have no mortgage payments for as long as you live in the house. Called a Home Equity Conversion Mortgage for Purchase, this is a HUD program created for seniors to buy homes with no mortgage payments.

Good luck with your mortgage and thanks for writing.