WaPo: Qualifying for a Mortgage Difficult in Retirement

Even for seniors with impeccable credit scores and plenty stored in assets, purchasing or refinancing a home in retirement without regular employment income can be a challenge, a recent column in the Washington Post says.

In his column “Even retirees with sizable assets can find qualifying for a mortgage challenging,” Kenneth Harney writes that retired borrowers can be taken by surprise when they are faced with denials or delays when loan officers do not know how to handle their financial situations. Further, many loan officers are not aware of loan programs available that can serve as alternatives for this population.

“They might have hundreds of thousands of dollars stored away in individual retirement accounts or 401(k) plans and other investments, but for mortgage purposes, they don’t have enough monthly income to qualify for the loan they want,” he writes. “They look asset rich, income poor.”

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He advises anyone who finds themselves in this situation to proactively ask their loan officers about Fannie Mae and Freddie Mac programs that are available.

These programs basically offer different approaches to traditional income and asset requirements that can help those qualify when they are income poor. One program allows the lender to recharacterize assets from retirement accounts as qualified income, while the other allows the lender to use retirement-income account balances to function essentially as “imputed income,” the article notes.

These options are not without their drawbacks, however, he writes.

“The assets in some seniors’ investment or retirement accounts may not qualify if they’re derived from ineligible non-employment-related earnings, such as lottery or gambling winnings and other assets that do not give an indication of a borrower’s financial history,” he writes. “Another issue: Loan terms for seniors may be just 10 or 15 years. Monthly payments on such mortgages are higher than those with standard 30-year terms. Not all clients can afford them.”

Reverse mortgage originators have long touted reverse mortgages as solutions for seniors looking to refinance, tap home equity, or buy a new home with a Home Equity Conversion Mortgage for purchase — options that are not mentioned in the article.

Read the full story in the Washington Post

Written by Maggie Callahan