There are times that I have used a mortgage borrower’s retirement account balance/s as income. I have done this even if the borrower is not currently taking required withdrawals from the account/s! But how can an asset be used as income? It can, and the guidelines allow it. However, there are rules.
There are many rules to consider.
- The mortgage must be for a 1-unit or 2-unit Primary Residence or a second home. No investment properties are allowed. And no 3-4 unit properties are allowed.
- The mortgage must be a purchase loan or a no cash-out refinance, not a cash out refinance.
- The maximum loan-to-value is 80%.
- At least one borrower on the account must be 62 years old.
- We take the account balance and divide by 240 to get the monthly income. For example: $800,000 401(k) account balance / 240 = $3,333.33/month in income to help qualify for a mortgage
All the Freddie Mac rules related to this can be seen by clicking here.
What if someone is already taking distributions from retirement accounts?
For retirement accounts that are already being used to take distributions as income, the Fannie Mae rules to document that as acceptable income are found here. Look under the area marked “Retirement, Government Annuity, and Pension Income.” The main points are:
- If retirement income is paid in the form of a distribution from a 401(k), IRA, or Keogh retirement account, determine whether the income is expected to continue for at least three years after the date of the mortgage application.
- Eligible retirement account balances (from a 401(k), IRA, or Keogh) may be combined for the purpose of determining whether the three-year continuance requirement is met.
- The borrower must have unrestricted access to the accounts without penalty.
If you are getting near retirement age or you are already retirement age, consider using your retirement accounts as income to help you qualify for a mortgage, even if you are not currently taking withdrawals from the account.