Since the pandemic began, mortgage qualification requirements have become more structured. This can
make it a little more interesting for homeowners in retirement to secure financing for a new
Though interest rates are beginning to increase they are still very low at an average of just 3.25%
for a 30 year loan and a very low 2.5% for a 15 year fixed-rate loan according to the mortgage
website Bankrate. This has made it very appealing for buyers in all walks and stages of life to look
into purchasing a home that better suits them or to make the jump from renting to owning a home. For
those in retirement, even when they have a large sum of money in savings, it can be more difficult
to secure a loan without proof of a significant income/paycheck.
This coupled with rising home prices and low inventory can make for a challenging and frustrating
home buying process for retirees. If someone is dedicated and keeps as positive of a mindset as
possible, purchasing a home after retirement can still be done with a bit of strategy and
The specifics of qualifying for a mortgage to purchase a home depend on the individual lender
offering to loan money. A large number of loans are backed by the major federal lending entities
Fannie Mae and Freddie Mac. These two lending giants have their own set of general loan qualifying
requirements for them to purchase (also referred to as back) a home loan from a lender. There are
some lenders that categorize as private lenders that do not need to be held to these requirements
because they do not sell their loans to either agency. Applying for a loan with a private lender has
The most common way for those in retirement to qualify for their loan is by income. Lenders will most
often look at a retiree’s tax returns for that last two years, this can tell the lender about your
Social Security, pension income, dividends, and interest. This may not be enough to qualify for a
mortgage loan though. This is where a retirement account can help to show proof of financial
Taking a distribution from an IRA for two months for example and placing it in your bank account
would show a lender a source of income. You must be at least 59.5 years of age to tap into an IRA or
401(k) plan without early withdrawal penalties. The cash can be put back after 60 days without being
taxable as well. Some mortgage brokers are using this method to help retirees seek mortgage
approval. But some lenders are knowledgeable of this method and there may be more strict income
verification in the future.
Another method that retirees can use is to qualify based on assets in a brokerage account or IRA. In
this method, the lender would apply a formula to the money in the account using about 70% of the
value of the account. This helps to determine how long the money in the account would last and if it
would cover mortgage payments for the life of the loan. This tells a lender if a loan payment can be
comfortably made with certain withdraws each month.
There are a few non-mortgage loan options that could help a retiree to purchase a home.
The first option is to use a margin loan on your brokerage account to help fund a down payment or
partial purchase of a home. With this type of loan, a brokerage firm will lend money against the
value of your retirement portfolio. This is known as borrowing on margin. Some retirees are using
this coupled with traditional financing to get into a home.
The second option for a non-mortgage loan is to pledge assets. This means taking a loan against your
brokerage account and assets are used as collateral. This differs from a margin loan as there is a
set duration for the loan. The longest term for this type of loan is 5 years. This type of loan
could be used as a bridge financing plan.