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How to Get a Mortgage on Social Security

by Don Rafner

You can qualify for a mortgage loan even if you're old enough to be drawing Social Security payments. You can thank the Equal Credit Opportunity Act, a federal law, for this. This law makes it illegal for lenders to consider a wide range of factors -- everything from sex, race, marital status and, yes, age -- when determining who qualifies for a loan. This act also states that lenders can't charge you higher interest rates solely because of your age. This doesn't mean, though, that qualifying for a mortgage loan when you're on Social Security is easy. You must still prove to your lender that you can make your monthly loan payments. If you're relying solely on Social Security for your income, that can be challenging.

Call several mortgage lenders to shop around for the lowest rates and fees. You can take out a mortgage loan with any lender licensed to do business in your state.

Fill out the Uniform Residential Loan Application provided by the lender with which you choose to work. This form will ask basic information about yourself -- your name, address and Social Security number. It will also ask you to provide information about your employment -- if you are collecting Social Security payments, you will have to write that you are no longer holding a full-time job -- gross monthly income and debts. If you've declared bankruptcy or gone through a foreclosure in the last seven years, you must indicate this, too. Send the completed form to your lender.

Prove to your lender that you can afford your monthly mortgage payments by copying and sending any documents that verify your gross monthly income. Lenders want your total monthly debts, including your estimated new mortgage payment, to equal no more than 36 percent of your gross monthly income. If you don't meet this debt-to-income ratio, you'll struggle to qualify for a mortgage loan. Lenders count Social Security payments, settlements from legal disputes, monthly rental income, royalties and pension funds as monthly income. Lenders actually like Social Security income because it requires little paperwork to prove -- just a copy of a recent Social Security check will do -- and it doesn't require "seasoning." When you rely on income from a job, lenders prefer to see that income "seasoned," meaning that you've worked in the same industry for, typically, a year or more, making that job income in lenders' minds more stable. Social Security doesn't require seasoning because the government guarantees your payments each month; they aren't going away.

Ask your lender if it will "gross up" your Social Security income, something that can make it easier to qualify for a mortgage loan. Social Security income is usually not subject to federal taxes. This means that lenders can, through a process called "grossing up," add an additional 25 percent to your Social Security income because you won't be paying income tax on this income. As an example, if you earn $1,000 a month in Social Security, your lender might count your Social Security income as $1,250, your $1,000 payment plus 25 percent.

Give your lender permission to run your credit. This will give your lender your three-digit credit score, a number that tells lenders how well you've managed your credit. If you've paid your bills on time and haven't run up huge amounts of credit-card debt, the odds are that your credit score is a high one. The higher your score, the more likely you are to qualify for a mortgage loan. You are also more likely to receive a low interest rate.

Sign any closing documents that your lender requires to make your mortgage loan official. After receiving your financial information and your completed Uniform Residential Loan Application, your lender will send your loan through underwriting. During this process, an underwriter looks at your gross monthly income, monthly debt obligations and past credit history to determine if you can handle the financial burden of a new mortgage payment. If your lender approves you, you'll sign several documents to close the loan.

About the Author

Don Rafner has been writing professionally since 1992, with work published in "The Washington Post," "Chicago Tribune," "Phoenix Magazine" and several trade magazines. He is also the managing editor of "Midwest Real Estate News." He specializes in writing about mortgage lending, personal finance, business and real-estate topics. He holds a Bachelor of Arts in journalism from the University of Illinois.

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