Qualifying With Retirement Income
You stopped working. That does not mean you stopped having income. Pension, Social Security, annuity, and retirement account distributions are all documented qualifying income.
Retirement income is qualifying income
The paycheck changed form. Underwriting still counts it.
- Corporate, government, and military pensions are accepted qualifying income sources.
- Social Security benefits count, and because they are wholly or partly untaxed, the amount used to qualify can be adjusted upward.
- Annuity payments qualify when the issuer confirms the withdrawal schedule and the account balance supports continued payments.
- Distributions from IRAs, 401(k)s, and similar retirement accounts count when there is a documented history of receipt.
- Retirement income works on purchases, rate and term refinances, and cash-out refinances.
- It is also an accepted income source on standalone second liens and home equity loans.
Award letters, not pay stubs
Non-taxable income adjusted upward
Pension, Social Security, and annuity
Retirement account distributions
Primary, second home, or investment
Combine it with other income
What Underwriting Actually Asks For
Different income sources, different paperwork. Here is what a retirement file looks like.
For a pension or Social Security, the core documents are an award letter or benefit statement from the organization paying you, plus recent bank statements showing the deposits landing. Some programs will accept a recent tax return, W-2, or 1099 in place of the award letter. On certain government refinance programs, a single recent bank statement or the award letter on its own is enough.
Retirement account distributions work differently because you control the spigot. Underwriting generally wants to see that distributions have been arriving for at least six months before you applied, and it will not accept a distribution you set up after applying just to help the file. The exception is a required minimum distribution you have to take because of your age. If your distributions make up more than half your total qualifying income, expect a five-year continuance requirement.
Annuities need a letter from the issuer stating that the annuity has been set up on periodic withdrawal, the amount, the duration, and the remaining balance. The balance has to be large enough to keep the payments going for at least three years past closing.
Why retired borrowers get turned down when they should not
Six things that go wrong on retirement income files, and how they get solved.
Nobody Asked For The Award Letter
A file built around bank statements alone often stalls. The award letter from the pension administrator or the Social Security Administration is the document that establishes the amount, and it is the one most often missing at submission.
Non-Taxable Income Was Taken At Face Value
A large share of retirement income is not taxed. Guidelines allow that income to be grossed up because a dollar of untaxed income goes further than a dollar of wages. How much depends on the program and on your actual tax situation, so the file needs documentation supporting the adjustment.
Continuance Was Never Addressed
Underwriting has to believe the income keeps coming. For a corporate, government, or military pension, borrowers of retirement age generally do not need to prove continuance. For account distributions and annuities, continuance is a real requirement and it needs evidence.
The Distribution Was Set Up Too Late
Starting an IRA distribution the week after you apply does not create qualifying income. Six months of documented receipt before application is the standard, unless you are required to withdraw because of your age.
Assets And Income Got Double Counted
If you are drawing a monthly distribution from an account, that same account generally cannot also be used for an asset depletion calculation. The two approaches are alternatives, not additions.
The Wrong Program Was Chosen
Some loan programs are built for wage earners and require two years with the same employer. A retired borrower cannot satisfy that no matter how strong the file is. Choosing a program that accepts retirement income as a primary source is the whole ballgame.
Hear From Homeowners Like You
Frequently Asked Questions
Common questions from retired and soon-to-retire borrowers.
On many programs yes, though it depends on the program. Some lite-documentation products treat pension and Social Security as supplemental only and require employment or rental income alongside it. We check which programs treat your income as a primary source before we submit anything.
It varies by program and by your tax situation. Some guidelines allow the non-taxable portion to be increased by a set percentage, others cap the adjustment at your actual tax rate. There is no single national number, and any adjustment has to be supported by documentation in the file.
Usually before you retire is easier, because you have both employment income and a documented future benefit. If you have already retired, the file is still very doable, it just needs the award letters and deposit history assembled up front.
On most loans there is no employer to verify. On certain government streamline refinances, retired borrowers aged 60 and older are specifically exempt from the verbal verification of employment step.
Yes on several programs. Investment properties are eligible, though credit score and reserve requirements are typically higher than for a primary residence.
Trust income is its own category with its own documentation, generally a copy of the trust agreement confirming the amount, frequency, and duration of payments. We handle those on a separate track.
Yes. Long-term disability income is an accepted source and is treated similarly to other fixed income, alongside retirement and Social Security.
Find out what you qualify for
Bring us the award letters, the most recent bank statements, and a rough sense of what you draw each month. We will tell you which programs count your income as a primary source and what the file needs before anything gets submitted.
Get Pre-QualifiedIncome documentation requirements, continuance rules, and gross-up treatment for non-taxable income vary by loan program and investor and are subject to change. Not all income sources are accepted on every program. Not all applicants will qualify. This is not a commitment to lend.