Best Loan Programs for This Situation
25% gross-up on non-taxable income, flexible asset depletion options, and lower mortgage insurance at higher credit scores.
15% gross-up on non-taxable income. Lower down payment option for retirees with limited liquid assets.
Jumbo portfolio lenders often have the most flexible asset depletion and retirement income guidelines for higher-priced properties.
The Equal Credit Opportunity Act makes it illegal for lenders to discriminate based on age. A 78-year-old who qualifies on their income and assets is as entitled to a 30-year mortgage as a 35-year-old. What lenders evaluate instead of age is the quality and stability of retirement income sources: Social Security, pension, IRA and 401k distributions, investment income, rental income, and trust income.
Social Security and Pension Income
Social Security retirement and pension income are among the most stable qualifying income sources available. They are predictable, inflation-adjusted, and not subject to employment risk. Non-taxable Social Security can be grossed up by 25% on conventional loans and 15% on FHA to reflect the pre-tax equivalent, meaningfully increasing qualifying income. Pension income is counted at its full documented amount. Both are verified through award letters and bank statements.
IRA and 401k Distributions
If you are drawing regular distributions from an IRA or 401k, those distributions count as qualifying income with three months of consistent withdrawal history. The lender needs three months of bank statements showing the same or similar distribution each month. If you have not yet begun drawing distributions, asset depletion is an alternative method for counting the retirement account balance.
Asset Depletion Income
Asset depletion is a method that converts a lump-sum asset into a monthly income stream for qualification purposes. Lenders take your eligible assets (savings, investment accounts, vested retirement accounts less a tax discount), subtract the down payment and reserves, and divide by the remaining loan term in months. A $600,000 retirement portfolio on a 30-year loan could generate a monthly income of approximately $1,667 ($600,000 / 360). Combined with Social Security, this can significantly increase qualifying income.
Retirees are some of the strongest borrowers I work with. Their income is stable, their credit histories are long, and their financial habits are generally disciplined. The only complexity is building the full income picture correctly: Social Security gross-up, pension, distributions, and asset depletion all layered together. I build that picture accurately.
Ready to explore your mortgage options in retirement and find out what you qualify for in Bakersfield?
Call Dan at (661) 342-9381. He'll review your income documentation and loan options in a free call.