Q&A: Can I Get a Mortgage When I am Retired?

The answer depends on your specific financial situation.

retirees meeting mortgage broker

Question: I’m 65 years old and about to retire. My home’s paid for. I have $3 million in savings and investments, plus about $60,000 a year coming in from annuities and interest dividends. I haven’t started taking Social Security yet, but I will soon, and that will bring in another $25,000 a year or so. I’m thinking of moving to Florida or somewhere else that’s retirement-friendly. Will I have trouble getting a mortgage?

Ric: Probably not, although it depends on the size of the mortgage.

Remember that a mortgage is not a loan against a house; rather, it’s a loan against your income. Therefore, the lender will want to know you have enough income to repay the loan.

Your $85,000 income should be adequate for you to obtain a $350,000 mortgage. Assuming it’s 80% of the home’s value, you could buy a $437,000 home.

But this ignores the $3 million you have. You could generate an income stream from that, which could easily produce an additional $120,000 or more per year. That would enable you to qualify for a $500,000 mortgage and a $625,000 home. These numbers assume a 4.5% interest rate and, of course, are based on a high credit score (720 or above) and the debt-to-income ratio that lenders in your state and city typically follow.

You’re going through one of life’s major changes; you’re talking about relocating to another state — you don’t even know which one yet. Also, you’re talking about becoming entirely dependent on investment income for your lifestyle, buying a home and dealing with a mortgage question related to that. You’ve got a lot going on. The only way to make this more challenging is to add, “I’m getting married too.”

With all these stressful things occurring, you’re a wonderful candidate for meeting with a financial advisor to help you sort through it all and make sure you’re handling things correctly, through a comprehensive and holistic approach instead of acting within a silo.

We call this compartmentalizing — focusing on just one area, possibly making a good decision there but then creating a problem in another area. For example, you might make the right mortgage decision — only to discover you hate the town you just moved to.

This is why you should talk first with an objective financial advisor, not a real estate agent or mortgage broker. After all, the agent gets paid only if you buy a house — the more expensive the better, for him — and the broker’s compensation is based on the size and type of mortgage you get. These people are thus not in a position to give you advice that’s in your best interest; they suffer from too many conflicts.

Visit the fee-based financial advisor first, who can evaluate your entire situation and help you make these important decisions. Then you’ll be ready to hire the Realtor and mortgage broker — with confidence.

 

More Retirement Advice