Getting a mortgage using only income from Social Security is possible, but affording a mortgage is not as easy as it might have been when you were working. There are other considerations to take into account when you’re buying a home as a retired person, too. Here’s what you need to know.
Can You Get a Mortgage in Retirement?
Yes, it’s possible to get a mortgage in retirement, even if your sole source of income is Social Security benefits. It’s common for people to think they won’t qualify just because they’re on Social Security, but in fact, the law protects you here. The Equal Credit Opportunity Act prevents discrimination by lenders based on several things, including your age and whether you’re receiving public assistance such as Social Security. However, just because you’re receiving guaranteed income through Social Security doesn’t mean you’re automatically fast-tracked for a mortgage. You’ll still need to go through the standard mortgage application and approval process. Here’s where things can get sticky. On its own, Social Security income usually isn’t a large payment. In August 2021, the average retiree earned a monthly check of $1,559—which would put them at $5,828 per year above the federal poverty line for an individual. Lenders generally won’t approve you for a mortgage if your total monthly debt payments, including the mortgage, exceeds 43% of your income. This is known as the back-end debt-to-income ratio, and it means that the average retiree would only qualify for a mortgage with a monthly payment amount of $670, assuming they have no other debts. It can be hard to find a home with mortgage payments so low in many areas of the country unless you have enough cash on hand to make a larger down payment.
How Much Will You Get on Social Security?
How much you’ll earn from Social Security in retirement depends on two main factors: How much you earned while you were working, and when you decided to apply for benefits. The Social Security Administration takes into account 35 of your highest-earning years and averages them. You’re allowed to apply for benefits as soon as you reach age 62, but your monthly paycheck will be cut by 25% for the rest of your life if you take them early. If you wait until the full retirement age of 67 before applying for benefits (for people born after 1960), you’ll receive the full amount. If you wait even longer—up until age 70—you’ll receive a credit that can boost your monthly Social Security payment by 24%.
How To Qualify for a Loan on Only Social Security
Getting a mortgage on Social Security income alone won’t be easy, but there are some things you can do to boost your chances of being successful.
Reduce Your Debts
If you’re able, paying down any other debts you have can go a long way toward boosting your approval rating for the mortgage you want. Because you’re generally limited to a back-end debt-to-income ratio of 43%, any percentage of your other debt you pay off increases the amount of the mortgage you can take out.
Improve Your Credit
Having good credit also affects what type of home you can buy, especially if you’re on a fixed income with Social Security. Better credit usually means a lower interest rate, and that translates into more buying power. Your credit score is also a factor in your loan application. In other words, the better your credit, the lower your interest rate, and the more home you can buy for the same monthly payment amount.
Offer a Bigger Down Payment
If you’re selling your current home and moving to a new one, it’s a good idea to consider using the funds from the sale of your previous house toward the down payment on your new one. That way, you’ll be able to take out a smaller mortgage, or even none at all.
Look to Other Retirement Income
If you’re unable to qualify for a mortgage with your Social Security income alone, you may need to find an additional way to supplement it. One way to do so is by seeking out a part-time job to generate additional income, which you can document on your mortgage application.
The Bottom Line
While it is possible to get a mortgage using Social Security income alone, it’s especially important to be careful. Make a budget so you know you’ll have enough to pay your mortgage and other expenses, including emergencies. That way, when it comes time to replace a roof or pay for something unexpected, such as a pricey septic-tank repair, you’ll be able to pay these expenses without any additional stress.
