Can I Use Retirement Income to Qualify for a Mortgage? – It used to be hard for retired borrowers to buy or refinance a mortgage because lenders insisted on seeing their current income – the kind you get from having a job.
Thankfully, Freddie Mac has guidelines for lenders that helps them use retirement funds to qualify borrowers for a home loan. When your loan is guaranteed by Freddie Mac, these are the guidelines for using retirement plan assets:
- The retirement assets must be in a retirement account recognized by the Internal Revenue Service (IRS) (e.g., 401(k), IRA).
- Borrower must be the sole owner.
- The asset must not currently be used as a source of income by the Borrower.
- As of the Note Date, the Borrower must have access to withdraw the funds in their entirety, less any portion pledged as collateral for a loan or otherwise encumbered, without being subject to a penalty or an additional early distribution tax.
- The Borrower’s rights to the funds in the account must be fully vested.
When you opt to use assets to qualify for a home loan your lender, here’s how it will work:
1. The lender will total your assets and generally multiply the total by 70 percent
Let’s suppose you have $500,000 in retirement assets — 0.70 x $500,000 = $350,000
2. The lender will subtract money you need to complete the transaction (for example for a down payment or closing costs)
Let’s suppose you need $50,000 for a down payment and closing costs — $350,000 – $50,000 = $300,000.
3. Finally, the lender divides the amount by 360 months — $300,000/360 = $833.33 month.
So in this example, you could use $833.33 to qualify for your mortgage.
Remember that you can always use income from other sources to help qualify including income from dividends, interest payments, trust distributions and Social Security payments.
This is just an example–your particular situation may be different If you’re thinking about buying a new home to retire in, get in touch with us.
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