It is a common misconception that it’s hard for seniors to find a lender that will approve their mortgage application. This is why many individuals choose to rush and apply for a mortgage before retiring, even if they’re not ready to take one. The thing is, seniors can still get a mortgage. One only needs to qualify by providing the requirements set by your lender to be eligible for a reverse mortgage houston.
But what do you need to get a mortgage if you’re a retiree?
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Income Requirements
Since more retirees can’t provide a paycheck, most think they don’t qualify for a mortgage. After all, you’ll need to have a stable income to qualify for one. In reality, mortgage lenders make use of two methods to check if your income is enough to cover for a mortgage.
Asset Depletion Method
Retirees who own many assets can get approved for a reverse mortgage Houston. With the Asset Depletion Method, your lender will check the current value of your assets. Your lender will subtract the down payment and closing costs with the current value of your assets. They will divide thew 70% of the remaining amount by 360 months.
For example, the total amount of financial assets you own is at $750,000. You lender will use $50,000 for the down payment and closing costs, leaving you with $800,000.00. Multiply the remainder by 70%, and you’ll get $490,000.00, and divide that amount by 360, and the answer will be $1361.00. It’s the monthly income your lender will use to qualify you as a borrower.
Drawdown From Retirement Method
Some retirees delayed the start of their pension income. You can use the drawdown on assets method. The borrower needs to be 59 1/2 years old. Your lender will use your recent withdrawals from your retirement account as your proof of income. For example, your last recent withdrawal is $6,000.00. Your lender will consider this as your monthly income.
Your lender will include your other income sources for both methods.
Good Read: How to Manage Income During Retirement
Down Payment Requirement
The down payment will depend on which income method your lender used to determine your monthly income. With the asset depletion method, you will need mostly need 30% down payment. As for the retirement method, you can put 5% down payment.
Credit Score Requirements
When it comes to your credit score, having a higher rating will give you better interest rates. Also, you can use a higher credit rating as compensation if you do lack in other requirements like a higher Debt-To-Income Ratio.
Good Read: Mortgage Rates By Credit Score
DTI Ratio
Most lenders will approve a mortgage application if your Debt-To-Income ratio is below 43%. This includes monthly debt payments and even required payments like child support and alimony. Take note that co-signing on loan can harm your DTI Ratio. While you’re not the one who applied for a loan, being a co-signee meant your lender would count their monthly payments as one of your required payments.
There are other things to consider when you’re a retiree applying for a mortgage. At the end of the day, talking to a lender is the best way to determine if you qualify for a mortgage or not.
