Created: October 24, 2021
Modified: January 27, 2023

Episode 55: How Does a Retired Person Qualify for a Mortgage?

Today’s question is, “How does a retired person qualify for a mortgage?”

One may think if you have lots of money, you should be able to get a mortgage really easily, but anyone who’s gone through this process knows this may not be the case. When you look at traditional mortgage underwriting, a lot of it is based on income. And if you’re retired, you may not have an income.

Should I Carry Mortgage Debt into Retirement?

It’s a personal preference when it comes to deciding whether to have debt in retirement. Of course having bad debt, or debts you can’t afford, is bad at any phase of life, but when considering a plan for all of the money saved in your retirement account, withdrawing it all at once will cause you to pay taxes on it all at once, which is almost never the best way to do it. In that case it may make sense to have a mortgage.

You also have to look at whether you are actually going to be writing off that mortgage. People say, “well, you know, if I have a mortgage, I can write off the interest,” but, are you itemizing your taxes? If not, then you’re not going to get any benefit of that interest from a write off standpoint. That being said, if you’re going to take out a $300,000 mortgage and it allows you to keep $300,000 maybe invested somewhere else, you’ve got to look at what you are most comfortable with.

Why do we all save money in the first place? So that we can live how we want to live and feel comfortable. So for those of you that say, “I don’t like using debt, I’d never use debt,” don’t. For others, maybe it makes more sense, however you’ll find some interesting requirements with the Lenders. We’ve seen some clients who have had to take monthly withdrawals from a retirement account to show that underwriter you can draw income off of investments. We’ve seen clients have to do this for as little as two months, but we’ve also seen clients have to do it for much longer than that.

Deciding on a Mortgage as a Retiree

Start first with a good plan and determine what you want and what you are going to be most comfortable with. Mortgage or not, as you draw your money out, ensure you’re keeping as much of it as possible and avoiding unnecessary tax fees. Don’t necessarily rule out mortgage as an option, but it might not be as easy to get as you think. It certainly requires having a conversation and asking, “are we are we thinking about this the right way?”

Thanks for joining me and I hope you found this information helpful!

P.P.S. Feel free to submit questions here for a chance to have them answered!

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