Difficulty Qualifying for a Mortgage as a Retiree

Written by: Valencia Higuera

Refinancing or getting a new mortgage loan when rates drop is an excellent way to save money. And for many retirees, a lower mortgage payment can be a welcome mat. Income typically drops after retiring. For this matter, some retirees downsize their primary residence and move to a cheaper home. This can keep their finances on track and help them survive the retirement years. If given the chance to buy a cheaper home or refinance and enjoy a reduced payment, many jump at this opportunity. But as many retirees are discovering, qualifying for a mortgage loan is much easier said than done.

Take a refinance for example. This is essentially the process of creating a new home loan. This new loan features new terms that replace the original mortgage. For retirees who’ve been living in their homes for many years and paying their mortgage on time each month, you’d think that refinancing a mortgage would be a piece of cake, especially if the borrower has been able to maintain the mortgage payment post retirement. But the fact that a borrower has successfully submitted payments each month carries little weight when refinancing.

Mortgage lenders don’t play around, and they’re very careful when choosing qualified applicants for a mortgage loan. Borrowers have to complete an application, provide income information and wait for the lender to check credit reports – the same rules apply when refinancing a mortgage. Not really a bad deal for people with good credit and adequate income. But for retirees, buying a new house or refinancing can be a nightmare.

From a retiree’s standpoint, downsizing and buying a cheaper house or refinancing an existing home loan can lower house payments, freeing up monthly income. Mortgage lenders, however, come from a different angle. And if a borrower’s income drops substantially after retiring, lenders might conclude that he’s unable to afford a mortgage – even if he’s refinancing and the new payment will be less than what he’s currently paying. Nowadays, it’s simply not enough to have good credit and substantial liquid assets.

Unfortunately, it doesn’t look like mortgage lenders will be relaxing their underwriting standards anytime soon. There are, however, options for retirees looking to qualify for a mortgage loan.

1. Apply for a mortgage loan before retiring.

Don’t wait until after you’ve retired to buy a new house or refinance your mortgage loan. Understand that it’ll be much difficult at this time, and getting approved may require jumping through a few hurdles. Apply for a mortgage while you’re still working and lenders will base approval on your income at the time of your application.

2. Supplement your income.

Getting a part-time job can make a world of difference when applying for a mortgage after retiring. Lenders will use the combined total of your retirement and part-time job income to determine how much house you can afford. You never know, earning as little as an extra $10,000 a year can eliminate your mortgage worries. And once you close on the mortgage loan, you can always quit your job, providing your retirement income is enough to pay the mortgage loan.

3. Borrow less.

If a drop in income limits how much you can borrow, take cash from your savings and put down a sizable down payment. This reduces how much you need to borrow, which helps you qualify for a mortgage after retiring.



Difficulty Qualifying for a Mortgage as a Retiree

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