Last week, Mark Wells at Preferred Financial Services discussed the use of 401-K and IRA rollover accounts to generate qualifying income for retirees applying for a mortgage. This week, he answers questions about other sources of retirement income.
I will receive a pension when I retire in six months. Can I apply for a mortgage and use that future income to qualify?
As I mentioned last week, the “test” for income is present receipt and anticipated continuity. Since your scenario would fail the “present receipt” test, you could not apply today for a mortgage using income you will not receive until sometime in the future. However, you can apply for a mortgage about a month ahead of your first pension check, and once you have received the first check, you can close on your loan.
I receive Social Security with my Medicare payment taken out of that check. Do I use the smaller amount to qualify?
Double good news here: You not only use the larger amount, but you also get to increase the part of the social security that is not taxed by 25 percent when applying for a mortgage. So a $1,000 gross Social Security benefit gives you $1,250 qualifying income. (This is because underwriting guidelines for employed borrowers use that borrowers’ gross income, assuming they pay normal income taxes. So any untaxed income can be increased by 25 percent to compensate.)
I’ve just retired but I’ve decided to work a part-time job. Can I use this income when I qualify for a mortgage?
To use income from a part-time job, you must have been on the same part-time job for at least two years. Once you reach the two-year point, the lender averages your last 24 months’ earnings to determine the income that can be used.
I’m going to do some consulting when I retire. How will that be used when I apply for a mortgage?
The same two-year rule that applies to a part-time job applies to self-employment income. In order to use consulting income as qualifying income, you will need to have filed two tax returns reflecting this income, and then the lender will average the net reported consulting income (after you have deducted business-related expenses), and let you use that as qualifying income.
I have a small annuity set up for retirement. Will the lender use that when I apply for a mortgage?
As long as the annuity does not terminate in less than five years, you can use 100 percent of that income to qualify for a mortgage. If your annuity is tax free, you can increase this amount by 25 percent just as you can any other non-taxed income.
Mark welcomes questions and comments and is
more than happy to discuss any retirement scenarios
for potential homebuyers. He can be at (864) 235-
9596, or by e-mail at Mark@TheGreatestRates.com.
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