Federal law makes it illegal to deny a loan just because of someone’s age. The Fair Housing Act of 1968 protects elderly people from unfair bias when applying for a home. The standard mortgage application, Fannie Mae Form 1003, asks for the borrowers’ birthdays. This is not so the lender can choose to deny applications based on age. Mainly, it is used to guard against fraud since the credit reports will include the borrowers’ birthdays and the approximate year the Social Security number was acquired.
Lenders allow retirement income when they approve mortgages. Borrowers must provide the retirement awards letter and proof of continuance for three years. Borrowers with pensions provide letters from the pension administrator stating if the pension is guaranteed for life for only for a certain amount of time. Most government pensions provide benefits for life. Other pensions may provide options that are not guaranteed for life.
Social Security is available to retirees starting at age 62 and a half. The federal government will tax social security when other income exceeds preset guidelines. Many lenders will gross up Social Security income by 125 percent if all of it is non-taxable. If you receive $2,000 of Social Security and it is not taxable by the IRS, then the lender may, at their discretion, qualify you with $2,500 of income.
Asset Depreciation and Interest Income
Fannie Mae and Freddie Mac no longer allow borrowers to qualify using asset depreciation. Asset depreciation is when a homeowner withdraws saved assets and uses them as income. The interest gained on the assets may be used to qualify if it is reported on the tax returns for two years and sufficient assets remain to support the income. A reasonable amount of interest will be used to qualify the borrower. Even though you may be accustomed to a 20 percent return, it is unlikely the lender will use that rate of return for approval.
The United States Department of Housing and Urban Development (HUD) created a special program only available to people eligible for Social Security. HUD’s program is called the Home Equity Conversion Mortgage. To qualify, all homeowners must be 62 years or older, own your home outright or have a small balance mortgage, and live in the home. HUD requires each borrower to attend HECM counseling to learn about the program and how the program works. The program does not require you to make any payment, nor qualify income-wise for the home. You can even receive income from the HECM loan each month if you have sufficient income. You keep your home, and can even will it to your heirs if you choose. Contact a HUD approve housing counselor for details.