While it is possible to get a new home loan after retirement, it won't necessarily be easy. Lenders are prohibited by law from discriminating based on age, so if you meet the lender's criteria, you can get a loan. The problem comes in when you have to qualify for the payments. Even with good credit and liquid assets, many retirees' income can make it difficult to qualify.
Fair Lending Laws
Lenders are beholden to fair lending laws, specifically, the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act. ECOA prohibits discrimination based on an applicant’s age, provided that you have capacity to enter into a contract. The Fair Housing Act also further prohibits discrimination based on familial status and handicap. Lenders can’t use different evaluation standards and are even forbidden from discouraging you from applying.
To purchase a new home, you need a down payment. Since you’ve retired, you hopefully have cash and liquid assets to afford it. Be cautious when using retirement funds as a down payment. You don’t want to use up too much of your savings to purchase a house if it would affect the comfort of your retirement. On the other hand, if you have significant cash, you can put a greater down payment on the property, leading to a lower payment, which in turn will help you qualify under the lender’s debt-to-income guidelines. Additionally, if you’ve retired before the age of 59 1/2, you won’t be able to access certain retirement funds, such as a 401(k), without a 10 percent tax penalty.
Credit is an important factor in qualifying for a home loan. Hopefully, your credit score is high and your report was blemish-free at retirement. You can check your credit through the government-sponsored Annual Credit Report website. You are entitled to one free copy per year from each of the three major credit bureaus – Experian, TransUnion and Equifax. If you see any erroneous information, contact the credit bureau before applying for a new loan. The law requires that the bureaus respond to inquiries within 60 days.
The biggest obstacle to getting a new home loan after retirement is your debt-to-income ratio. You can have great net worth, but if you don’t bring in enough monthly income through your Social Security, pension or other retirement accounts, you won’t qualify for the loan. Lenders use the same standards regardless of your age or employment situation. Your debt-to-income ratio can be no greater than 28 percent for housing expenses and 36 percent overall. Again, a larger down payment might lower the payments enough for you to qualify, but you may be limited by what you bring in each month.
- PBS: Does it Make Sense to Get a 30-Year Mortgage at Age 66?
- Mortgage News Daily: Getting a Mortgage After Retirement
- Los Angeles Times:Retirees May Find They Don't Qualify to Refinance Their Mortgages
- Federal Reserve: Federal Fair Lending Regulations and Statutes Overview
- Bankrate: Use Retirement Savings to Buy a House?