What to Know About Qualifying for Retirement Mortgages
Retirement doesn’t have to stop you from buying a new home. In fact, many standard loan programs allow seniors receiving Social Security and retirement income to qualify for a mortgage without proof of employment.
What are retirement mortgages?
Retirement mortgages are home loans for retired borrowers that don’t require standard income documents like pay stubs and W-2s. Mortgage companies, however, do follow special guidelines related to retirement income set by Fannie Mae, Freddie Mac and government-backed loan programs. There are also unique non-qualifying mortgage programs that allow you to convert assets to income if you don’t receive retirement pay from traditional sources like pensions or Social Security.
What types of retirement mortgages are offered?
Lenders may not specifically call their products retirement mortgages — in fact, many loans available to employed borrowers are also available to retirees. There are some, however, that cater to the financial circumstances of seniors and retired borrowers.
Conventional loans
Government-sponsored enterprises Fannie Mae and Freddie Mac fuel the housing market with 3% down payment mortgages for retired borrowers. Seniors who can make a 20% down payment won’t pay private mortgage insurance premiums.
FHA loans
Loans backed by the Federal Housing Administration (FHA) allow retired borrowers to qualify with a credit score as low as 500 and a 10% down payment. For FHA loans with a 580 credit score, the down payment is only 3.5%. Unlike conventional mortgage insurance, FHA mortgage insurance is required, regardless of your down payment.
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A loan backed by the U.S. Department of Veterans Affairs (VA) makes it easier for eligible retired military borrowers to buy or refinance a home with no down payment or equity and flexible debt-to-income (DTI) ratio guidelines. Although the guidelines for VA loans don’t set a minimum credit score, VA-approved lenders often require at least a 620 minimum. VA loans also don’t require mortgage insurance, but you may pay a VA funding fee unless you’re exempt due to a service-related disability.
Learn more about how to refinance your home.
USDA loans
If you’re looking to retire in a rural area, a USDA loan guaranteed by the U.S. Department of Agriculture (USDA) doesn’t require a down payment. It’s designed for low- to moderate-income borrowers. The home must be in a USDA-designated area, and borrowers pay an upfront and annual guarantee fee instead of mortgage insurance.
Reverse mortgages
If you’re at least 62 years old and have at least 50% equity in your home, you may convert that equity to income in various ways with a reverse mortgage. The biggest benefits: You don’t need income to qualify, there is no monthly mortgage payment and you’re only responsible for monthly property taxes and insurance payments on your home. There is only one reverse mortgage program backed by the federal government — the home equity conversion mortgage (HECM) — but private lenders and state governments also offer the product.
Asset depletion loans
Retired borrowers with a high net worth may opt for retirement mortgages that let them convert their assets to income. For example, if you have a $1 million investment account with your bank, they may offer you a 15-year mortgage and use your asset balance to calculate $5,555.56 per month of qualifying income ($1,000,000 divided by 180 months = $5,555.56).
Bank statement loans
Some lenders offer bank statement programs if you can’t document income on your tax returns but receive regular large deposits from royalties or a business buyout deal. Qualifying income is based on your deposits for the last 12 to 24 months.
How to qualify for retirement mortgages
Applying for a mortgage during retirement is the same as applying for a mortgage while employed. Your age won’t be a factor — lenders are prohibited from age discrimination based on the Equal Credit Opportunity Act. But you will need to prove you meet your loan program’s minimum mortgage requirements and document your income based on the type of retirement income(s) you receive.
Mortgage requirements for various loan programs
| Requirement | Conventional | FHA | VA | USDA |
|---|---|---|---|---|
| Down payment | 3% | 3.5% | 0% | 0% |
| Credit score | 620 |
| No minimum, 620 is standard | No minimum, 640 is standard |
| Mortgage insurance or similar fee | PMI 0.14% to 2.33% |
| 1.40% to 3.60% VA funding fee |
|
| DTI ratio | 45% | 43% | 41% | 41% |
| Loan limit for a single-family homes | $766,550 to $1,149,825 | $498,257 to $1,724,725 depending on location | N/A with full VA entitlement | N/A |
Documents you need based on the acceptable types of retirement income
| Type of Income | Documents Needed | Specific Guidelines |
|---|---|---|
| Social Security | → Social Security award letter → Proof of recent receipt of income | Social Security survivor benefits also require proof you’ll receive the income for at least three more years |
| Supplemental Social Security Income (SSI) | → Social Security award letter → Proof of recent receipt of income | |
| Retirement, pension or government income | → A statement from the company providing income → A copy of the retirement award letter or benefit statement → A bank statement showing the income deposited into the account → Signed federal tax returns → IRS W-2 or 1099 form | |
| 401(k), IRA or Keogh retirement income | → Same conditions as above → Must also confirm the income will continue at least three years | Must have unrestricted penalty-free access to all accounts |
| Dividend and interest income | → Two years of tax returns showing receipt of income → Copies of account statements verifying balance | |
| VA benefits income | → Letter from VA confirming income → Verification the income will last at least three years | Not required for VA retirement income or long-term disability income |
| Long-term disability income | → Proof of eligibility for income → Documents outlining how much and how often the benefits are paid → Confirmation there is no end date to receipt of the income |
Non-taxable income can help you qualify for retirement mortgages
When you apply for a home loan with regular hourly or salary income, lenders use your gross income (before taxes and deductions) to determine whether you qualify. However, retirement or Social Security income is often non-taxable. Therefore, lenders can “gross up” your income by an additional 25%.
For example, if you receive $2,000 per month of non-taxable income, a conventional lender can account for an additional $500. In other words, your $2,000 a month will instantly become $2,500, boosting your qualifying power.
You’ll need to provide award letters, tax returns or other documents to verify the tax-free status of your income.
Frequently asked questions
Yes, as long as their income and credit meet the above guidelines.
Yes. As long as you can verify recent receipt of it, along with an award letter confirming your current award amount. If you’re receiving survivor benefits, you must also prove you’ll get the income for the next three years.
Yes. A job is not required to qualify for retirement mortgages.
No. Mortgage interest rates for retirees are based on the same factors as any other mortgage.