WASHINGTON – June 4, 2013 – A policy revision at Freddie Mac – Fannie Mae has something similar – allows seniors to include money in their individual retirement account (IRA) or 401(k) to qualify for a mortgage, according to Kenneth Harney in the Washington Post.
The change could allow baby boomers in retirement to refinance their current home at a lower interest rate or take out a new mortgage if they decide to scale down and buy a new house or condo. They don’t have to actually use any of the money in an IRA or 401(k); they’re simply using it as proof that they can afford a monthly mortgage payment.
Retirees many times have trouble qualifying for a mortgage because, in retirement, their monthly incomes fall and lenders’ debt-to-income standards ban them for borrowing. However, many retirees also have sizable nest eggs. The change allows lenders to consider those nest eggs in a lending decision.
The lending rules are complicated and a bit different for Fannie Mae and Freddie Mac; and in some cases, certain retirees won’t qualify. Essentially, however, the lender will look at the size of the retirement savings, make some conservative worst-case estimates about what could happen to that money over time, and calculate how much of it could be applied to each monthly mortgage payment.
The change could help a number of baby boomers, whose numbers swell by an estimated 8,000 per day. Those who have home equity, good credit scores and savings may now be able to qualify for a retirement home.
Source: Washington Post, May 25, 2013. Harney, Kenneth R.