Can a Retired Person on Social Security Get a Mortgage?

Worried mature Couple in Meeting With Advisor at home.
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Every person takes a different life path. You hear of older or retired individuals getting married or enrolling in college all the time. Age doesn’t preclude enjoying the perks of home ownership, either.

There is no age restriction for getting a mortgage, according to the Equal Credit Opportunity Act of 1974, which “prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age, because an applicant receives income from a public assistance program, or because an applicant has in good faith exercised any right under the Consumer Credit Protection Act.”

Your Social Security income can be used to apply for a mortgage, but a lender will need to assess your overall financial situation for it to be approved.

Using Social Security Benefits To Apply for a Mortgage

It may be more difficult, but retirees using only income received from Social Security benefits can qualify for a mortgage if the amount is sufficient.

Aside from looking at your credit score and down payment commitment, a lender will need proof of your Social Security income, which you can obtain from the Social Security Administration by requesting a Social Security benefit verification letter, or “budget letter.”

Mortgage providers look at an applicant’s debt-to-income ratio when trying to determine loan suitability. As the name suggests, a DTI indicates your monthly debts, including housing costs, in relation to your monthly income.

Are You Retirement Ready?

For a conventional mortgage loan, lenders typically require a DTI of 36% to 45% of stable monthly income, depending on credit score. However, some borrowers can be approved with a DTI of 50%, according to Fannie Mae.

How Lenders Evaluate Your Income

Despite earning a typically lower income than wage workers in their prime, Social Security beneficiaries are at a slight advantage in one regard. Lenders look at gross income when qualifying an applicant for a mortgage, and gross income is based on taxable income. Social Security benefits, up to a certain amount, are not considered taxable by the federal government and may help a senior get approved for a mortgage.

Social Security beneficiaries don’t pay federal income tax on their Social Security benefits unless their combined income from all sources is more than $25,000 ($32,000 for married joint filers) per year. That means lenders don’t have to subtract federal tax from a beneficiary’s gross income to determine how much after-tax cash they have available to pay their mortgage and other bills.

This may help older mortgage applicants who earn more than $25,000, too. Those who have a total income of between $25,000 and $34,000 pay income tax on up to 50% of their Social Security benefits, and those who make more than $34,000 pay up to 85%.

So, 15% to 100% of a Social Security beneficiary’s Social Security benefit is non-taxable on their federal income tax return and can be “grossed up” by a lender during the mortgage application process.

How To Improve Your Chances of Getting a Mortgage

At any age, the higher your credit score and the more you can put down, the better chance you will have of securing a mortgage and at a better rate.

Conventional mortgages typically require a credit score of 620 and a down payment of at least 5% (3% for special programs for borrowers with modest income). Government-backed Federal Housing Administration loans typically require a credit score of 580 and 3.5% down — or a 500-579 score and 10% down.

Are You Retirement Ready?

Any supplemental income, such as investment or retirement accounts, will improve your chance of having your mortgages application approved.

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