Mortgage News and Notes

A recent Wall Street Journal article was a reminder to us that not everyone is aware that you can get a home mortgage at virtually any age, even one that amortizes on your 120th (or later) birthday. Entitled “You’re Never Too Old to Apply for a Mortgage,” the Journal article makes two important points. One, the Equal Credit Opportunity Act forbids age discrimination in mortgage lending, and two, there are mortgage products now available which are tailored to those at or near retirement age. This means that if you qualify for a mortgage, you can get one even if you are in your 80s or older. In other words, your mortgage can be designed to outlive you.


Qualifying for the mortgage can be done the traditional way, with income from employment or a business, Social Security, monthly pension benefits, or regular distributions from an IRA or 401k. If income from those sources add up to an amount sufficient to meet the lender’s criteria, then it qualifies.


But what about those that don’t have fixed regular income, and instead take distributions from retirement investments as needed for expenses, or those whose Social Security and other monthly income is insufficient to qualify? You now have more options, as lenders have recently created mortgages that rely on your retirement assets, even if you are not taking regular distributions. These programs go by various names; asset depletion, asset annuitization, etc., but their main feature is that the lender will consider “imputed” income for qualifying purposes. Imputed simply means that the borrower need not take actual distributions, but instead the lender calculates what the borrower could reasonably withdraw on a monthly basis.


Both Fannie Mae and Freddie Mac allow lenders to make such loans to borrowers age 59.5 and older, but they use different formulas. With Fannie, the total value of retirement assets is first reduced by 30% (to allow for down markets), then the resulting amount is divided by 360 to get the monthly imputed income. For example, if your retirement investments are valued at $1,000,000, that would be 1,000,000 x 70% = 700,000 / 360 = $1944 in imputed monthly income. Freddie uses 240 months instead of 360, so in this example the imputed income would be $2917. Freddie also allows the use of non-retirement investment portfolios, for borrowers ages 62 and older.


Asset based mortgage loans can be a big help for those planning their finances ahead of retirement – it is one more tool for your financial toolbox. If you would like additional information on these programs, or if you wish to discuss how they might fit into your particular financial situation, please contact Margie. She would be happy to discuss the details with you.


Steven H Hofberg, Operations Manager

Posted in:Qualifying and tagged: debt to incomeQualifying
Posted by Steven Hofberg on January 22nd, 2020 11:11 AM


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