How to get a mortgage if you're retired

If you're considering applying for a mortgage in retirement, here's a look at what to expect, as well as some tips for making the process less painful

An illustration of an older couple and a small house
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If you're already retired and have tried to get a mortgage, you may have been surprised by how hard it was. And for those who are not yet retired, take note: Getting a mortgage in your golden years isn't necessarily a smooth-sailing process, even if your finances are in stellar shape, with a solid financial portfolio and a stockpile of assets.

"It can get tricky for retirees," Al Bingham, a mortgage loan officer, tells CNBC. "You can have a lot of money but show very little income and have difficulty qualifying for a mortgage."

While Kiplinger reports that the Equal Opportunity Credit Act "technically prohibits lenders from discriminating against borrowers due to their age," getting a mortgage when you're older still includes "unexpected pains — including mountains of documentation, questions about income and repayment, and potential second-guessing on the part of the underwriter."

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If you're considering applying for a mortgage in retirement, here's a look at what to expect, as well as some tips for making the process less painful.

Why is it so hard to get a mortgage in retirement?

When you apply for a mortgage, lenders want to know about your income, among other financial factors. While you technically may have an income in retirement, it's generally fixed — in other words, you're no longer regularly bringing home a paycheck. Additionally, it's possible your income is lower than it was during your working years.

Both of these factors may make it more challenging to convince a lender that you're in a good position to pay back a mortgage. In retirement, your income likely comes from a number of sources, such as a retirement plan, a pension, or Social Security. While all of these offer income, some are seen as "finite income sources because they're depreciating assets," per Chase. The bank adds that "[m]ost lenders will ask you to prove there's enough money in these accounts to provide a stable income for at least three years." You'll also need to show that you're receiving regular income on a monthly basis from these funds.

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Is the qualification process different for retirees?

Perhaps the biggest difference in the mortgage qualification process in retirement compared to your working years is the documentation you'll need to provide. "Lenders typically require income documentation going back two years," Forbes notes. This can be a challenge if you've been retired for more than that length of time. Instead of handing over your W-2s, "you'll need to show evidence of Social Security, pension income, dividends and interest payments," the business magazine says.

It will also take more legwork to establish your income when you're retired than it would have when you were employed. You may be "inundated with requests for information," as was the case with one retired applicant Kiplinger spoke to. "The bank not only wanted to know the status of his checking and savings accounts, investment funds and Social Security withdrawals, but also the reason for every single transfer over $1,000. If he took money from a family trust, the bank required that he provide a note and backup documentation to validate the transaction as legitimate."

To get his mortgage, this applicant eventually had to get an exclusion from his bank, which was basically an acknowledgment that he had the funding, even if he technically did not meet the bank's criteria.

How to make it easier

If you need to apply for a mortgage in retirement, or if you're planning ahead for that period in life, here are some tips to keep in mind:

  • Apply for a mortgage before retirement if you can. If you're still working and know that you'll want to buy a house, make moves to get a mortgage before you retire. "Banks underwrite mortgages based on income, and when you are retired, you often have assets not income," Kiplinger says.
  • Get your documents in order. Be prepared to get a lot of requests for documents, many of which you'll need to upload online. "If you secured a mortgage 20 or 30 years ago, you might not realize that you'll need to be much more computer savvy," Kiplinger says. Start collecting any paperwork that might be relevant in advance. And if you don't know how to upload documents, ask for a tutorial.
  • Mentally prepare for intensive tracking. It's possible your lender will want information on any transaction you make for more than $1,000. So be prepared to provide that level of information on your finances.
  • Think about a HELOC as a fallback. A home equity line of credit, or HELOC, allows you to tap into the equity of your current home to provide extra cash as needed. If you're in a bind trying to buy during retirement, that could help you out.
  • Be communicative. Stay in touch with your loan officer, and don't hesitate to ask for help with any steps of the process.

Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She has previously served as the managing editor for investing and savings content at LendingTree, an editor at SmartAsset and a staff writer for The Week. This article is in part based on information first published on The Week's sister site, Kiplinger.com

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