For many retired homeowners, relocating or downsizing is a common goal, but determining the best way to pay for their next home may seem complicated. Without a steady employment paycheck, many retirees assume they can’t qualify for a mortgage, leaving them with two options: purchase the home in cash, which may be tied up in assets, or simply stay in their current home. The good news is that retirement does not mean you cannot move or that you have to pay cash for your next home. In fact, retirees may be able to qualify for a mortgage even if they have minimal monthly income.
For retirees, the way lenders document and calculate income simply changes from W2 income to asset-based income. In general, funds in liquid assets, such as retirement accounts, stocks, bonds, Certificate of Deposits (CDs) and savings accounts, can be totaled and divided by the term of the loan to determine qualifying income. This method of calculating income is called the asset depletion method.
Using asset depletion to help determine your qualifying income is ideal for asset abundant borrowers who are 62 or older, have minimal monthly income and at least 20% for a down payment. Despite its name, the asset depletion method does not require borrowers to cash in their assets unless they are using them for the down payment or closing costs. Funds for the down payment, closing costs and reserves must be subtracted from the asset balance before the qualifying income calculation can be performed. Once your qualifying income is determined, your lender can then assess your debts and other loan conditions and requirements to estimate how much you may be eligible to borrow.
For retirees who have income from other sources, like social security and/or a monthly pension, the asset depletion method can be used in combination with these types of income to determine qualifying income.
Not all lenders offer the asset depletion method to calculate qualifying income. Even if your lender offers an asset depletion program, guidelines for how much can be counted, minimum age requirements and the minimum term of the loan for calculating income will vary by lender. For example, Ameris Bank’s asset depletion method allows for 100% of the retirement assets (less funds being used for a down payment and closing costs) to be divided by the term of the loan if you are at least 62 years of age.
By financing the purchase of a home, retirees can keep more cash on hand to use as needed. The asset depletion method is one of a few mortgage options retirees have when qualifying for a mortgage during retirement. To see which loan product may be right for you, consult your Ameris Bank mortgage banker.
Reviewed July 2023
By: Marlene Sheard
Marlene is a mortgage marketing representative for Ameris Bank and previous sales and marketing president for her local Home Builders Association. She enjoys sharing her experiences for the buying, selling, and financing of homes.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Ameris Bank is not affiliated nor endorses the companies featured in this article.
All loans subject to credit approval.