If you need a mortgage, get one before you retire

Financial Planners


Two years ago, when retired engineers Kelly and Derek Barkey applied for a $50,000 home equity line to repair their new home, they knew they would be approved.

The Barkeys, now 56 and 59, sold their long-time home and purchased a house near St. Louis worth about $850,000 in cash. They had her $3 million worth of retirement account, $500,000 taxable brokerage account, and excellent credit score.

They were surprised when National Bank turned them down.

“We haven’t been denied credit since 1987 or so,” says Kelly Barkey, recalling when the couple applied for a reward credit card when she was still in college.

Federal Equal Credit Opportunity Act prohibits lenders from discriminating against applicants based on age, but it does mean that even those with good credit, low debt, and ample savings are likely to get a mortgage in retirement. Financial planners say it doesn’t mean things will get easier.

The problem is often proving that you have enough steady income to pay off the loan, says Lori Trawinski, director of finance and employment at the AARP Public Policy Institute.

Working people can use the W-2 form and pay slips to prove that they have sufficient income. Lenders can verify income through IRS transcripts by calling employers or using large salary databases such as The Work Number. Lenders usually want to see two years of steady income, but working borrowers don’t have to prove that their income will continue at the same rate.

For retirees, the rules are more complicated, says Trawinski. Retirees often have to prove not only that they earn enough to pay the loan, but that the money will last him at least three years, she says.

Barkeys says it draws about $35,000 a year from taxable brokerage accounts, and Derek Barkey makes another $35,000 in consulting. However, they were told their application was rejected due to “insufficient income.”

Mr. Trawinski suspects the Barkeys were caught by auto-underwriting software that didn’t calculate income properly.

Mortgage lenders typically divide retiree income into two categories. Income with and without potential expiry. The applicant’s performance-based pension payments and Social Security retirement benefits do not expire because the income lasts for life. By contrast, retirement and investment accounts can dry up over time and are therefore often considered expiring, requiring borrowers to prove their income will continue for at least three years. .

Lenders can use the “asset depletion” calculation to determine the income an account can generate. The underlying investment may lose value, so generally only 70% of the account balance is considered in the calculation. Lenders can divide the result by the expected number of payments, such as 360 for a 30-year loan.

Retirement accounts are generally not included in these calculations unless they have unrestricted access to their balances. Mr. and Mrs. Barkey said she was under 59.5 years old (the earliest age they could access their retirement account without penalty), so lenders typically ignored her $3 million in retirement accounts.

Kayla Johnson, a certified financial planner, says it often takes “a lot of financial gymnastics” to help retirement clients get mortgages and HELOCs. She recommends applying for a mortgage while working her job, if possible.

“It’s easiest to secure the loans you need before you retire,” says Johnson.

People who need a mortgage and are already retired should consider talking to a loan officer about their situation before submitting an application and risking damaging their credit score. , financial planners say. Conversations like this help potential applicants get a better feel for how lenders view their applications and how many hurdles lie ahead. Lenders may not be equally proficient in dealing with retired customers, so finding the right lender may require consulting multiple lenders.

If you get turned down, don’t think it’s your last word.

After being rejected by the credit union, Kelly Barkey reached out to the president on Facebook Messenger to ask why. She said she received a call shortly afterward from a loan department manager who admitted that the credit union had “overlooked a few things.”

“And within a day we had HELOC,” says Kelly Barkey.



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