What income lenders count in retirement
Retirees can qualify on any combination of:
- Social Security — grossed up 125% for the non-taxable portion
- Pension income — with a benefit letter showing 3+ years continuance
- Annuities — same 3-year continuance rule
- IRA / 401(k) / TSP distributions — must be currently being drawn OR use asset-depletion (below)
- Part-time or 1099 income — 2-year average, same rules as self-employed
Every income source must be shown to continue for at least 3 years from closing.
Asset depletion — when you have savings but no monthly draw
If your retirement accounts aren't yet being drawn, lenders can convert your assets into 'qualifying income' using a formula:
Qualifying income = (70% of liquid retirement assets) ÷ 360 months
Example: $1,000,000 in an IRA → 70% = $700,000 ÷ 360 = $1,944/month qualifying income.
Freddie Mac and most non-QM lenders offer this. Fannie Mae is more restrictive (asset dissipation only, borrower must be 62+, different formula).
The mortgage insurance question
Retirees often ask if they should put 20% down to avoid mortgage insurance. Usually yes, but not always. If putting 20% down drains reserves below 6 months, put less down and keep reserves. Reserves protect you far more than avoiding $150/month PMI.
Another option: VA loan if you're a veteran (no PMI, no down payment), or a reverse mortgage / HECM for Purchase if you're 62+.
Is this path right for you?
Frequently asked questions
Can I get a mortgage on Social Security alone?
Yes. SS is fully qualifying income, grossed up 125% for the non-taxable portion. You'll need SSA benefit letter + 2 months of deposits.
Do I need to be working to qualify?
No. Retirement income (SS, pension, IRA draws) fully qualifies. Employment is not required.
How does asset depletion work?
Lenders take 70% of your liquid retirement assets, divide by 360 months, and add that to your qualifying income. Great for retirees with savings but no active draw.
Is a reverse mortgage a better option?
Sometimes — a HECM for Purchase lets you buy with a large down payment and no monthly principal + interest. Best evaluated case-by-case with a HUD counselor.
Related guides
- The Complete First-Time Homebuyer's Readiness Guide
- How much home you can actually afford
- Pre-approval checklist
- Back to the Knowledge Base
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