Taking a Mortgage During Retirement
After you retire, you may wish to move to a smaller home or a different location. While a retired individual may decide to rent a home rather than buy one, a retired person can secure a mortgage if he has a reliable source of income and a good credit history.
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Mortgage Requirements
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To qualify for a conforming mortgage, you must have enough income to prevent your revolving monthly liabilities from exceeding 36 percent of your countable monthly income. You must also have enough funds available for a down payment equal to at least 5 percent of the value of the loan, and you must typically have a credit score that exceeds 620.
Retirement Income
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Retired borrowers typically receive income in the form of pensions, 401(k) distributions, Social Security retirement and IRA distributions. Fortunately, you can typically use this income to qualify for a mortgage. To verify your income, you must provide the lender with letters from the organizations that provide the income, retirement award notices, bank statements, federal income tax returns, 1099s or W-2s. If you are receiving distributions from a 401(k), Keogh retirement account or IRA, you must also show that you will continue to receive payments from the account for at least three years.
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Age Discrimination
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Under the Fair Housing Act, lenders can't discourage you from applying for a mortgage or reject your application based on your age. When determining your eligibility for a mortgage, lenders must include income from pensions, Social Security and annuities and give it the same weight as all other reliable sources of income. If you qualify for a loan based on the lender's criteria, he can't impose different terms on you because of your age.
Considerations
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Lenders may require you to have a minimum amount of reserves available at closing, which are funds you can access easily if necessary. You can use up to 60 percent of the contents of your retirement accounts as reserves as long as you have the ability to make withdrawals. You can also use the funds contained in a retirement account to make your down payment.
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