Retired people receiving pensions may purchase or refinance a home with a mortgage like anyone else. Retirement income of all types may be used to qualify for a mortgage. Mortgage lenders may not exclude the pension income or consider a borrower's age when determining whether an applicant qualifies for a mortgage loan. Federal Fair Lending laws prohibit lenders from engaging in age discrimination when approving or denying a mortgage loan.
Documenting Pension Income
Most homeowners with pensions worked for unions or the government, and many companies no longer offer pensions, but rely instead on other retirement plans. Homeowners with pensions receive a pension awards letter when they retire. This awards letter documents the amount of pension received and how long the pension will continue. Most pensions continue for life. The mortgage lender requires a copy of the awards letter and often requires a second document proving its receipt, such as tax returns or the bank statement showing the account that receives the pension deposit.
Documenting Social Security
Many, but not all, people who receive a pension also receive Social Security. While pension income is usually taxable, Social Security may not be. Even though Social Security is not always taxable, it still must be reported on the tax returns. Mortgage lenders require a copy of the annual Social Security awards letter and a second form of documentation showing receipt of the funds, much like the documentation requirements for a pension.
Documenting Disability Income
Depending on the pension, some or all of it may be received as disability benefits. Military, police and firefighters often have some portion of their pension designated as disability based on injuries received during the line of work. Often one awards letter shows both the pension and the disability. If the disability is documented separately from the pension, you must provide the pension and disability paperwork to the lender to use both to qualify.
Documenting Interest and Dividend Income
Many baby boomers worked for companies that offered either pensions or 401k or other retirement plans. Many of these people also saved and invested money on their own. Often mortgage lenders allow the interest and dividends earned from investments to be considered in a loan application. You may need to document this income with at least two years of tax returns and proof of the borrower's assets. The tax returns document the amount and stability of the income. Someone who earned $50,000 two years ago but only earned $1,200 one year ago may not be able to use the income to qualify. Asset statements are required to document that the borrowers have sufficient funds invested to sustain the investment or dividend income.
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