Want to buy a second home for or during retirement?
Getting a mortgage after retirement can be a difficult task.
In this video, we will be discussing the challenges of getting a mortgage after retirement or just before retirement. It’s a significant financial decision that requires careful planning, especially when it comes to obtaining a mortgage.
Lenders prefer a consistent and steady income from a reliable source, making it easier to qualify for a mortgage while still working. However, if one decides to wait until retirement to buy their dream home, they may face challenges qualifying for a mortgage.
We will discuss the potential pitfalls, such as income stability and the impact of a new mortgage payment on current expenses. Additionally, we will explore using assets to qualify for a mortgage and the potential tradeoffs associated with it.
By the end of this video, you will have a better understanding of the potential challenges and considerations when getting a mortgage after retirement or just before retirement.
Buying a second home in retirement or just before retirement is a significant financial decision that requires careful planning. Obtaining a mortgage after retirement or before retirement is challenging, and it’s essential to understand the potential pitfalls to avoid falling into them.
When planning to buy a vacation or a second home, it’s easier to buy it while still working than waiting until retirement. Lenders prefer consistent and steady income from a reliable source, and if one has been employed for 20 or 30 years, they will have a stable income source that will make it easy to qualify for a mortgage.
However, if one decides to wait until retirement to buy the second home, they may face some challenges qualifying for a mortgage. For instance, if they find their dream home six months into retirement, lenders may not give them a mortgage since they haven’t had a stable source of income for 24 months. In such a situation, lenders may want one to wait for 24 months to prove that they have a consistent source of income.
Another challenge that one may face is adding the new mortgage payment to their current expenses. They need to prove that they have enough income to qualify for the payment. Lenders may also want to see a higher income for a few months before lending to ensure that one has the capacity to pay.
To raise their income, one can ratchet up their distributions for a short period, say a few months, to prove a higher income. They can also look at their brokerage accounts to qualify for the mortgage. The brokerage account needs to have about 70% of the value of the home they are buying.
Using assets to qualify for a mortgage instead of income may carry a slightly higher interest rate. It’s essential to consider the interest rate because a higher rate means a higher payment. However, some programs can buy down the interest rate to make it more affordable.
In conclusion, getting a second mortgage after retirement or just before retirement requires careful planning. It’s essential to understand the potential pitfalls, including income stability and the impact of a new mortgage payment on current expenses. Using assets to qualify for a mortgage is also an option, but it may carry a slightly higher interest rate.
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