Athen Apaquette

First of all no matter what your age, there are laws in this country that outlaw discrimination based on all sorts of things but age is one of them. I actually got a loan denial reversed 20 years ago on a loan that was turned down because the underwriter said: “she doesn’t believe a woman of that age would be getting another bigger home to live in”. doesn’t matter the reasoning the fact that the underwriter, also she, said a “woman of her age” was discrimination against my client. This was 1996, not 1976.

Questioning your income source: I’ve had clients ask me if they will take their “retirement income” as countable in qualifying for a mortgage just as I have had people ask if banks want or need 2 incomes to qualify for a mortgage as opposed to just one, or if they will finance them because they survive on disability or other income provided by the government.

Let’s make first things first clear: income that is steady, predictable and ongoing for 3 years into the future is countable. Even if you just retired and have just started your permanent income source of a pension or social security or permanent disability, then we can count it.

By the “how” in your question, I assume you mean how do you qualify for a refi after or in retirement years.

If you haven’t read my other articles, you don’t know that I have said over and over that agencies and the federal or state government (fannie mae freddie mac being agency lending then FHA and VA being government insured then all the rest is the wild wild west) have a set of rules and banks, mortgage bankers and wall street can decide how much they adhere to or tighten those rules when they qualify you for a mortgage whether purchase or refi.

Sources of income in retirement can include pensions, draws on your retirement accounts like 401k, IRAs etc. income can also be from a part-time job in the same field you used to working or 2 years in a different industry, can be from rental properties or businesses you have invested in. In some cases you need 2 years’ history of the income (like dividends), in some cases, it’s counted from the first letter awarding you the income (like a pension).

To help people on fixed non-taxable income we can even do what’s called grossing up of the non-taxed income to find the equivalent gross income (since your non-taxable income is basically a net income). For example, if your social security is $1000 per month we will qualify you with $1250 (1.25% of the net amount). So qualifying in retirement for a refi is a little easier in that sense.

Equity:

In refinancing in the retirement phase of life, most of my clients have a lot of equity which in analyzing risk makes you look a lot less risky. So if you have a little credit issue, a low credit score, or high debt to income ratio, this will mitigate those risk factors with the huge plus of having huge equity.

Embedded in this factor is the longevity of ownership. If you have a ton of equity or low loan-to-value it’s probably because you have owned the home a long time which implies you would not easily walk away from an asset you worked long and hard to own, maintain and paydown.

Credit

In retirement hopefully, you have a great credit which will also lower the risk of making you the loan. So if your credit score is 780 or higher a debt ratio of 50% doesn’t seem as risky because that score indicates that you manage your debt well, living within your means and pay not only on time but in full.

Cash reserves:

You are more likely to get approved for a mortgage while on a fixed income if you have cash reserves. Even a little. The agency automated underwriting platforms (called DU and LP) take that into their calculation or algorithm of risk.

Loan purpose

Another risk factor is the loan purpose itself. If you are asking for a refi to take a ton of cash out this represents a bigger risk than someone who is just refinancing to lower their payment.

Debt to income ratio

So I put this factor last because I have gotten people in retirement approved for refinance mortgages where their debt to income ratio or DTI is 60%. Even 84% on a VA loan for a veteran who needed a loan of $1.5million. For example, a client had just retired and started getting a pension of $2500 per month. Tax free. This client was approved for a new mortgage of $300,000 at 4% which was a payment of 1432 plus $200 for taxes and $50 for insurance. He was lowering his payment down from $3500 per month to this $1682 total. Let’s look at the numbers: $1682 divided by $2500 is high = 67.28% DTI BUT you probably know lots of people doing this. AND remember in reality that that is net income which is not what we use to qualify, to compare apples to apples with the salaried person we “gross up” the income $2500 x 1.25% = 3125, therefore $1682 / $3125 = a 53% DTI.

IF all else fails and I mean if all else fails, then consider a reverse mortgage, one of the most expensive loans out there but has only age equity and stress test for bills as qualifier and no monthly payments.

5 tips to getting a loan when you are retired:

· Remember to gather all your income and asset records even if you are not sure that the lender can use them let them see everything and get the most out of it to qualify you.

· Go to a lender who is not strict, ie skip the big banks since they tighten guidelines for fixed income and don’t like to make small loans which is often the case for retirees.

· Know your credit and credit scores before you approach a lender since you probably haven’t seen your credit in a while you want to clear anything up before going in.

· If they say your debt ratio is high ask them if they grossed up any non-taxed or non-taxable income.

· Get a referral to a solid knowledgeable mortgage broker in your area. You can ask an attorney who handles trusts, a realtor who you see lots of signs for, your family or friends, church members, etc. whoever you trust most with financial matters and integrity hopefully can give you a referral to a great lender.

If you would like more advice on how to handle your mortgage passed retirement age, make sure to visit my services page.

Cheers!

Athena