Retiree

Getting A Mortgage After Retirement

It may seem like a nearly impossible task to get a mortgage after retirement, but there are ways you can do it even if you are not employed. If you’re planning to apply for a mortgage, here are 5 common questions you might ask that we’ve answered for you:

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1. What will lenders consider as my income?

  • Income from a regular or part-time job

  • A brokerage account or retirement savings

  • Transfer payments like Social Security and your pension

  • Invested assets

  • Household income (income from non-borrowing household members)

2. How will lenders calculate my income?

If you are not employed, there are two methods that lenders will use to calculate your income. Take note that if you receive transfer payments, those will be included in the computation for your income in both of these methods.

  • Asset depletion method: If you have a lot of invested assets, the lender will calculate their current aggregate value and will subtract the amount for the down payment and closing costs. 70% of what remains will then be divided by 360, which is the number of months’ payment on a 30-year mortgage.

  • Drawdown from retirement method: If you’re at least 59 ½ years old, you can use documents or receipts that verify your recent withdrawals from retirement accounts.

3. What are the factors that can affect the approval of my mortgage application?

Aside from the above, some of your other financial details will also be subject to the lender's scrutiny.

  • Credit score: The typical requirement of lenders for a credit score is usually 780; a score that's higher than that can increase your chances of getting approved. And if you ever fall short on other factors, such as debt to income ratio, a good credit score just might save your application. Also, if your score is higher than that, you could also get a better interest rate.

  • Debt to income ratio: Your debt is comprised of car payments, credit card minimum payments and your total projected house payment which includes interest, principal, property taxes and insurance. Other things like alimony and child support are also included in it. The debt to income ratio is expressed as a percentage, and is computed by dividing your total monthly debt by your gross monthly income. The safe percentage among lenders is generally considered to be 43% or lower, but maximum DTI still varies per lender. The ideal is 36%, and with no more than 28% going into paying the mortgage.

  • House expense ratio: Your housing expense ratio is the sum of your housing payments such as the potential mortgage principal and interest payments, property taxes, mortgage insurance, hazard insurance, and association fees. It’s computed by dividing the sum of those by your pre-tax income. Just like the DTI, it is expressed as a percentage and is ideally not to exceed 36% of your income.

  • Post-closing liquidity: Your lender would also want to see your available liquid assets after closing, and they usually require that you have assets that could cover at least 6 months’ worth of housing expenses. This is calculated by adding up all of your verified financial assets and then subtracting the closing costs and equity for the loan.

4. How much is the usual down payment?

The amount of down payment you would have to give is dependent on the method used for determining your income.

5. What are my other options aside from getting the usual loans in the market?

  • VA loans: If you’re a veteran or a military spouse, VA loans offer 0 down payment and low interest rates.

  • Reverse mortgage: Also known as the Home Equity Conversion Mortgage (HECM) for purchase program, it is a kind of loan that can delay repaying the mortgage (principal or interest) until the house is sold or until the death of the borrower.


Here are some tips for when you’re getting a mortgage after retirement:

1. Getting a mortgage for your primary residence will result in a lower interest rate,
while a mortgage on a home that will be used for vacation or investment
purposes will have higher interest rates.

2. If you can, make extra mortgage payments. If you can afford to pay more than what the lender calculated, you can arrange to have the monthly payment increased. This can shorten the time you would have to pay for the mortgage and could decrease your monthly payments over time, and decrease the amount of interest you need to pay on the
mortgage overall.

3. If you plan to take out a hefty amount of cash for the down payment from an IRA or another tax-deferred retirement plan, take note that you might also be placed in a higher tax bracket.

4. Know about the consequences to inflation hits or a great increase in your property taxes. You also have to consider having a financial contingency plan should there ever be medical emergencies, or a price increase in your health insurance. Take these into account and get an estimate if you can still cover these events on top of your mortgage.

Here’s What Life Is Like After Paying Off Your Mortgage

How great does a mortgage payoff sound? After making your final payment, there’s nothing sweeter than seeing in your account that you are already “PAID IN FULL” after a substantial period of 15 or 30 years. Congratulations! Paying off your mortgage is a huge and remarkable milestone—you now own your home free and clear. However, there are still a few things you need to do to ensure that you have a clear ownership of your property. Here are some of those extra steps:

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Expect to receive some important documents

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When your mortgage is paid in full, your lender should return the mortgage promissory note you signed when you first took out the loan. The canceled promissory note proves you have fulfilled the terms of the loan and that you no longer owe the lender any money. If you don’t receive yours back, the lender should at least send you a payoff notice to show you now have a zero balance on your home.

The lender may also send you the canceled trust deed, which secured your loan with title to your house and which conveys the home to a lender if the borrower defaults. You also need to check your credit report to make sure your mortgage account now shows a zero balance. It may take a few weeks to receive your paperwork, which should include a Satisfaction of Mortgage statement—a document stating that you’ve paid off your home. If you received nothing after a couple of weeks of making your last payment, call your lender to check on your paperwork and make sure it will soon be on its way.

 

Release of lien

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Once you’ve paid off your loan in full, your lender will send a document to the county or city registry office notifying them that your title is now clean. That means the lien the lender attached to the property when you got your mortgage is no longer valid. He/she will prepare a Release of Deed of Trust or Satisfaction of Mortgage that will discharge your property from any claim. When there is no longer a lien on your property, it means all the equity is now yours especially if you decide to sell your home.

 

Cancel your automatic mortgage payments

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If you’re like most homeowners who’ve set up automatic payments through their banks, you now need to contact your bank and tell them to turn off the automatic deduction for your mortgage payments.

 

Update your payment for property taxes and homeowner’s insurance

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For most homeowners, their property taxes and homeowner’s insurance were likely escrowed by their lender and rolled into their monthly mortgage payments. Once you’ve paid off your loan, you’re now in charge of making those payments. For property taxes, contact your local taxing authorities to make sure you’ll receive the bills and avoid a hefty fine if you were late with your payments.

Likewise, for your homeowner’s insurance, contact your insurance company or insurance carrier to have the lender removed from the policy. The lender will no longer have any claim to your house, so they should not have the legal right to any insurance payout in the case of fire and other damage. If your house suffered significant damage and your lender’s name remains in the homeowner’s policy, it can make filing and collecting of an insurance claim more complicated because you’d have to deal with the lender first before you could even get your insurance check.

Now that you’re taking over those payments, you must set aside enough cash to pay for both. Experts highly recommend homeowners to create their own escrow account or open a bank account where they can deposit the funds needed to cover those each month. The good news is that your lender is likely to have kept extra funds above and beyond what you actually owed in taxes (when your payments were held in escrow). You should get that reserved collection a couple of weeks after making your final payment in the form of a check from your lender. You can put that into your account and you can also deposit the same amount as your mortgage each month until you have enough to cover your property taxes and homeowner’s insurance premium.

 

Keep your documents in a safe place

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Well, you’re not exactly at risk of losing your house if you lose your deed. But it can be quite a hassle to replace it. If you do lose it, you can claim a new deed in the county that your house is in by paying a small fee. It’s an important document that signifies your ownership of your home, so better keep it in an actual safe or even in a safety deposit box. It’s also for security reasons just in case things go badly down the road, such as if someone questions your ownership of the property (it isn’t impossible!), or if someone comes claiming you didn’t pay the loan off in full.


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Because a mortgage can be your largest financial commitment in life, it’s the last thing you need to pay off before you can consider yourself debt-free. You can finally kiss that debt goodbye for good after making that last payment and allocate the money you were using to pay it down each month towards other financial goals.

You now have some serious cash you can spend whenever you want. But on the wiser side, it’s important to not feel overwhelmed by all these extra cash and miss the opportunities to achieve other concrete goals you are looking forward to, such as a car, a vacation home, and other big purchases. You can also keep part of that money in your bank account or in your retirement fund. If perhaps there are renovations you’ve been dying to do in your home, you can now achieve them and boost its resale value. Or you can make modifications to help you age in place and enjoy the latter years of your life in your beloved home.

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Allocating your monthly mortgage payments elsewhere after making your final payment can give you more financial freedom to invest in your home and in yourself. You no longer have to worry that you owe anyone any money. For retirees or those who are nearing their retirement years, it can be one of the best feelings in the world.

 

Now that the hardest part is over, go treat yourself. You deserve it more than anything. That house is now yours—free and clear of any liens and issues about ownership. It’s an outstanding achievement worthy of a big celebration. In Scotland for an instance, homeowners paint their front door red to signify that they have paid off their mortgage. Go on, paint your door red if you like to. It’s worth proclaiming that you’re now mortgage-free after all these years!