Qualifying for a Loan After Retirement
Retirees trying to obtain a mortgage may find that a pristine credit history and healthy retirement accounts are not enough. Lenders are also looking for a consistent monthly income in line with their usual debt-to-income standards.
Sanford Evans, 75, ran up against this requirement recently when he applied for a $174,000 loan to finance the purchase of an apartment in the Riverdale section of the Bronx. With brokerage accounts exceeding $1 million, a TransUnion credit score of 822, and the ability to make a 40 percent down payment, Mr. Evans didn't anticipate any problem with qualifying.
"I would have paid cash," he said, "but the interest rates are so low it didn't make financial sense to do it. I figured this was going to be as easy as it's been in the past."
But despite the loan officer's initial assurances that the loan would close quickly, Mr. Evans, who was moving from a condo in Boston, endured delays that dragged on for months.
The problem, he was told, was his income. He received Social Security and monthly dividend distributions, and supplemented these earnings with part-time medical writing for a Boston hospital. Yet he still came up short. The lender wouldn't count the writing income because he was moving away from Boston.
This made no sense to Mr. Evans, given the size of his brokerage accounts. "Having a job does not give you any more security than having the assets that I have," he said.
Most lenders, though, measure income the same way, said Richard Pisnoy, a principal of the Silver Fin Capital Group, a brokerage in Great Neck. When they look at dividends, they want to see a regular annual amount on the tax return paid out over at least the last two years. As far as part-time work, when the borrower applies, "they need to be able to confirm you're actually employed at that moment," he said. They will then credit income shown, but may require a two-year work history.
Social Security income is always counted. Borrowers should be aware that Fannie Mae guidelines allow lenders to increase that income by 25 percent if the beneficiary isn't paying taxes on it, Mr. Pisnoy said.
John Prom, the Manhattan branch manager for Real Estate Mortgage Network, offers other tips on coping with the income requirement. A couple of portfolio lenders are still issuing loans without verifying income, he said, but their interest rates are a little higher. So are down payments, at 30 to 40 percent.
In addition, some lenders qualify income-deficient, asset-rich retirees by using a program known as asset depletion.
"They take a fraction of your assets, amortize it and apply it as income," Mr. Prom said.
Asset depletion was ultimately the strategy used by Sterling National Bank to qualify Mr. Evans, according to Tony Jao, a regional sales manager.
But by the time Sterling was ready to close, Mr. Evans had grown so frustrated that he had applied to a second bank, HSBC. It interpreted his income differently, given that he could work remotely, and approved his loan in four weeks. He ultimately took his business there.
Mr. Evans says the application process wouldn't have irked him so had he known what to expect. "I was in the advertising business for 40 years," he said, "and the rule was always underpromise and overperform. That's what part of the problem was here."