If you are a retiree who wants to take advantage of low interest rates to refinance the mortgage on your Tampa real estate or obtain a new mortgage on a smaller home in order to downsize, you may be in for an unpleasant surprise when you apply to your lender. Even with a spotless credit history and significant financial assets in retirement accounts, your diminished monthly income may not be sufficient to meet some lenders' hyper-strict underwriting rules—and you may be rejected.
Take heart, however, Knowing that lenders are looking for a consistent monthly income in line with their usual debt-to-income standards, both Freddie Mac and Fannie Mae now allow seniors to include money in their individual retirement account (IRA) or 401(k) to qualify for a mortgage. (This revision in policy is actually two years old, but word has been slow to spread.)
In keeping with the fact that many retirees have sizable nest eggs, the change allows lenders to consider that money in a lending decision. Even better, retirees don’t have to actually use any of the money in an IRA or 401(k); it is simply used as proof that they can afford a monthly mortgage payment for Tampa real estate.
Thanks to the Equal Credit Opportunity Act, retirees can’t be refused a mortgage as long as their credit, debt-to-income ratio, and factors required of anyone applying for a mortgage loan are met. Many retirees assume that a 30-year mortgage is impossible, but that is not so; you’re just as eligible at 90 as you were earlier in your life.
Because some loan officers aren't aware of techniques available for qualifying retirees who are asset-rich but income-deficient, you must take steps to ensure that you are not rejected:
- Look for a lender who will annuitize your assets. Both Fannie Mae and Freddie Mac, who buy or guarantee loans made by many banks and other lenders, have procedures allowing loan officers to factor retirement assets into underwriting decisions.
- Borrow less so that your income will become higher as a percentage of your debt. The way to do this is by tapping your savings to pay off a portion of your current mortgage, which will then reduce the size of the loan you’ll apply for in your refinancing.
Good news for baby boomers, whose numbers swell by an estimated 8,000 per day!
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