Are you planning to retire?Apply for a home loan first

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 longtime home in Southern California and purchased a home 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 turned down credit since 1987 or so,” says Kelly Barkey, recalling when the couple applied for a points 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 will be able to obtain a mortgage in retirement. Financial planners say it doesn’t mean things will get easier.

Lori Trawinski, director of finance and employment at the AARP Public Policy Institute, said proving that you have enough stable income to pay off the loan is often a concern.

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. (Find out what big data says about you. Visit

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.

retirement income

The Barkeys say they draw about $35,000 a year from their taxable brokerage account, 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 at which a retirement account can be used without a penalty), so lenders typically ignored her $3 million in retirement accounts.

How to get approval

Kayla Johnson, a certified financial planner in Wilmington, North Carolina, says that helping retirement clients obtain a mortgage or home equity line of credit (HELOC) often involves “a lot of financial gymnastics. ‘ is required. 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 says she got 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.

The content is intended for educational and informational purposes and does not constitute investment advice. Liz Weston is a Certified Financial Her Planner and author of “Your Credit Score” She is a columnist for NerdWallet.

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