Lenders typically require proof of steady, reliable income from borrowers when they apply for a refinance. If you’re no longer working, it may be difficult for you to show consistent cash flow. However, many mortgage lenders allow retirees to use their retirement assets to qualify for a refinance. These assets include:
- 401(k) plans
- IRAs
- Social Security
- Pensions
- Investment accounts
Lenders will also review your investments and retirement accounts to determine whether you satisfy the loan’s income requirement.
Special Considerations For Retirement Accounts
For your retirement accounts to qualify as income, you must demonstrate that you can draw from the accounts for the next 3 years without triggering penalties and have enough cash to support your existing expenses and loan payments. Your lender will likely require you to provide extra documentation to prove your access to your retirement accounts.
If you plan on retiring soon, lenders will require evidence that you have enough funds from your job or retirement accounts to cover your expenses for at least the next 3 years. If you can, consider applying for a refinance after retirement when you can access your retirement accounts. Otherwise, your lender may deny the application.
While you aren’t required to report your planned retirement date to your lender, if you plan on retiring soon, make sure your finances can cover all your expenses, including your new mortgage payments.
Special Considerations For Bonds, Stocks And Mutual Funds
The type of investments you have may impact how mortgage lenders view your total income. If you have bonds, stocks or mutual funds in your retirement accounts, most lenders will only consider 70% of their value due to the volatility of these assets. This may affect your ability to qualify for a refinance since lenders may only consider a portion of your assets’ value.
Considerations For The Loan Term
The Equal Credit Opportunity Act ensures mortgage lenders can’t deny a requested loan term based on age. This protection allows you to select a mortgage loan term that suits your financial needs and goals.
Understandably, you may worry about what happens to your mortgage after you die. You can plan ahead by setting up a life estate and putting money aside or using insurance to cover the mortgage.
