LOS ANGELES—Retirement is an exciting time in life. Being able to spend more time with family and friends is especially enticing after nearly a lifetime of working. But for some retirees, they wonder if they can get financing for the next home they hope to buy.
The answer is yes. Being retired doesn’t mean you can’t qualify for a mortgage loan.
Banks don’t care if you’re retired and not working. They care about whether you have income that would qualify you for a mortgage loan or refinancing an existing one. As long as you can prove income, whether it’s from a pension, retirement fund, Social Security or some other source, you are halfway there. The key is to prove your income so you can demonstrate your ability to service the loan.
As long as your ratio of gross income to mortgage payment is within accepted guidelines and your credit score is 680 or more, your chances of getting financing are good. Banks and mortgage companies aren’t interested in whether you can outlive the life of the loan or not. They just want to make sure you can make payments now and up until you decide to sell.
These days, many retirees are opting to downsize from their current homes to something smaller and with a lower mortgage payment, so it’s not surprising these days to see more activity in this area. And it makes sense. By law, if you’re 55 or over, you can move your current property tax payment from the old house to the newer one as long as you file the proper paperwork. Even if the new property is worth more than your former home, you don’t have to pay a higher property tax if you qualify.
Unfortunately, many seniors and retirees don’t know about this tax benefit or simply don’t take advantage of it, but it’s there for you as long you’re 55 or over.
Another advantage to financing, if you’re a retiree, is the excellent FHA (Federal Housing Authority) home mortgage program that allows you to apply for loans with 3.5 percent interest and with a low or no down payment. Because FHA loans are insured by the federal government, the buyer is required to pay an upfront mortgage insurance premium equal to 1.75 percent of the loan amount at closing. This insurance premium can be financed as part of the loan so you don’t have to pay out of pocket for it.
Some, however, may opt to do a reverse mortgage. I’m not a fan of the reverse mortgage because it has a lot of upfront costs and because it means a gradual loss of equity until nothing is left,, but many prefer this because it means they don’t have to pay a mortgage.
A reverse mortgage is the kind of loan that’s available to home buyers where they use the home’s equity to pay a mortgage, meaning they don’t have to make payments back to the mortgage company until the property is sold.
There are many upfront fees in this and ultimately, you have to repay the loan with an interest rate that is higher than a traditional home loan.
But for those considering home buying in your retirement years, there is financing available at very low rates. As long as you can prove your income and have a good credit rating, you may well be on your way to your new home.
David Rosenfeld is a Real Estate broker and president of Advantage Real Estate, a Real Estate and investment firm in Santa Monica, and a Rotary Club member. He has more than 20 years experience in commercial and residential property investments and financial counseling. He can be reached at 310 450-4488, at firstname.lastname@example.org at www.advantage-realestate.com.
By David Rosenfeld