Smart About Money: Can I get a mortgage or home equity line if I’m retired?

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Writing in The Wall Street Journal’s Wealth Management Report, retired senior editor Carol Hymowitz said there is “no single road map or retirement plan” these days. She seemed to wish there was.

Was there ever a “single” tried & true retirement road map? Possibly it may have seemed that way. 65 used to be “retirement age.” Today 65 is just another number. Some people are retiring much earlier than 65. Others don’t want to ever retire. If there was a “cookie-cutter,” it’s long gone now. Which is a good thing.

Speaking of retirement, a customer recently asked about something they’d heard on a financial radio program. Apparently, the host of the show suggested that an individual should do any mortgage or home equity borrowing while they still had W-2 income. As the customer remembered hearing, the host said it would be impossible to qualify for a loan in retirement.

Hmmm – well, if the host said it was “impossible” to borrow in retirement – that’s certainly not true. But the question does raise an interesting set of considerations for anyone who’s doing medium-term or short-term pre-retirement planning as well as for anyone who’s currently retired. Because, as is so often the case when it comes to financial questions, the answer is, “It depends.”

Traditionally it was widely presumed that people would be in lower tax brackets when they retired because they would be earning less. But – between pensions and 401(k)s, Individual Retirement Account required minimum distributions, Social Security and other paid work – some people’s income actually goes up.

But, as a practical matter, most people’s income does go down in retirement and that can contribute to making borrowing more difficult.

Regarding getting a mortgage or a home equity line, any borrower should be able to qualify as long as they have a good credit history and an income stream that will allow them to comfortably pay back the loan.

Under Federal anti-discrimination law, age is not a barrier to borrowing. Employment status isn’t a barrier either.

That being said, dealing with the application paperwork is generally easier for people who have W-2 income. Specifically, because W-2 income is so easy to verify. Post-employment income may need additional verification. Generally, it’s straightforward enough and typically it’s a matter of the borrower providing some further documentation.

One gentleman I spoke with wanted to know why his Social Security income and the substantial equity he had in his home weren’t enough for him to qualify for a home equity loan.

Unfortunately, his Social Security income – which was now his only income – would not let him pay back the home equity loan he wanted with enough left over to live on. And equity in a home does not count as “income.”

While it’s always a good idea to aim to be debt-free, if you’re still working and thinking of borrowing for something major, it would be worth your time to sit down with your lender before you leave your job so you fully understand what you can easily do now that could be more complicated to do later.

If you’re retired and planning to borrow, it can be even more important to sit down with a lender who will take the time to go over all your retirement income numbers with you. You may have to provide some extra paperwork to make it happen. But it is definitely possible to borrow in retirement. People do it all the time.

Nick Maffeo is the President & CEO of Canton Co-operative Bank in Canton. “Smart About Money” is a regular column he writes for the Canton Citizen. Have a financial question you’d like to ask? Email to info@cantoncoopbank.com.

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