Yes, a retired person can buy a house. The Equal Credit Opportunity Act prohibits lenders from denying a mortgage application based on age, as long as the applicant has the legal capacity to enter a contract.1Office of the Law Revision Counsel. 15 USC 1691 – Scope of Prohibition Retirees qualify every day, either by paying cash or by documenting income from Social Security, pensions, retirement account distributions, and savings. Close to one in three repeat buyers now purchase entirely with cash, and retirees make up a large share of that group. The rest work with lenders who have well-established methods for evaluating non-employment income.
Cash or Mortgage
Paying cash is the simplest route if the savings are there. You skip underwriting, avoid interest, and often close in two to three weeks. Sellers prefer cash offers because there is no risk of the deal falling apart over an appraisal gap or a denied loan, which gives you room to negotiate on price.
The trade-off is liquidity. Tying up a large share of retirement savings in one asset leaves less on hand for healthcare costs, emergencies, and investments that may earn more than the mortgage rate would cost. Many financial planners suggest at least running the mortgage numbers before committing to cash, particularly if the home would consume more than 40 to 50 percent of your liquid assets.
What Counts as Income Without a Paycheck
The biggest question retirees face is how to prove income to a lender. Underwriters accept several non-employment income sources as long as the money is documented and expected to keep coming.
- Social Security retirement and permanent disability benefits both qualify. Because Social Security is often partially or fully exempt from federal income tax, lenders can “gross up” the benefit by adding up to 25 percent to the net amount, putting it on comparable footing with taxable wages. If your actual tax savings would exceed 25 percent based on your bracket, the lender can use that higher figure.2Fannie Mae. General Income Information
- Monthly pension payments from a former employer or a government retirement system count as stable income. If the pension has no defined expiration date, the lender can generally treat it as ongoing without extra documentation.
- Regular distributions from a 401(k) or IRA qualify, but lenders typically need to verify that the withdrawals will continue for at least three years from closing. Required minimum distributions, which begin at age 73, are especially easy to document because federal tax rules mandate them.3Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs)
- Part-time earnings can be counted with at least a two-year history in the role. A shorter history down to 12 months may still qualify if other factors like strong reserves or minimal debt offset it.4Fannie Mae. Standards for Employment-Related Income
- Rental income from a home you are keeping can count toward the new mortgage under FHA guidelines. You generally need to be relocating more than 100 miles away, have at least 25 percent equity in the property, and provide a signed lease of at least one year.5HUD.gov. Revisions to Rental Income Policies, Property Eligibility, and Appraisal Protocols for Accessory Dwelling Units
The 25 percent gross-up matters. If you receive $2,000 per month in Social Security that is not federally taxed, the lender can qualify you on $2,500. Over the course of a 30-year mortgage calculation, that difference can move you into a meaningfully larger loan.
Turning Savings Into Qualifying Income
Asset depletion is where retirees with substantial nest eggs but small monthly withdrawals get their strongest tool. Rather than counting only your regular distributions, the lender converts your eligible assets into a calculated monthly income figure and adds it to whatever else you receive.
The math depends on the loan program. Under Fannie Mae rules, net eligible assets are divided by the remaining loan term in months. A 30-year mortgage uses a divisor of 360; a 20-year term drops to 240, producing a higher monthly figure. Freddie Mac standardizes the divisor at 240 months regardless of the loan term. Retirement account balances are typically reduced first to account for potential taxes and penalties before the division.
A simple example under Freddie Mac’s method: $480,000 in eligible liquid assets after adjustments, divided by 240 months, produces $2,000 per month in additional qualifying income. Paired with Social Security and a modest pension, that can be enough for a comfortable mortgage. This is often the mechanism that makes homeownership realistic for retirees who saved diligently but do not draw large recurring amounts.
Credit Score and Debt-to-Income Requirements
Credit standards apply to retirees the same way they apply to anyone else. For conventional loans, 620 has been the traditional minimum. Fannie Mae and Freddie Mac have moved toward evaluating overall risk factors rather than a hard cutoff, but individual lenders still commonly set their floors at or near that number.
FHA-insured loans are more flexible. A score of 580 or higher qualifies for a 3.5 percent down payment. Scores between 500 and 579 require 10 percent down.6HUD.gov. Mortgagee Letter 10-29 – FHA Credit Score Requirements For retirees whose credit dipped during the transition out of full-time work, FHA is often the more realistic path.
Debt-to-income ratio compares your total monthly debt payments to your gross monthly income. The original Qualified Mortgage rule capped this at 43 percent, but that standard was replaced in 2021 with a price-based test that looks at whether the loan’s interest rate stays within a reasonable range of market averages.7Federal Register. Qualified Mortgage Definition Under the Truth in Lending Act Most lenders still treat 43 to 45 percent as a practical ceiling for conventional loans. FHA and VA programs can go higher with compensating factors like large cash reserves. Every existing debt payment counts against you, so paying down car loans and credit card balances before you apply raises the mortgage amount you can qualify for.
What to Gather Before You Apply
The paperwork for a retired borrower looks different from a salaried worker’s file, but it is not more complicated. The core document is the Uniform Residential Loan Application, Form 1003, which comes from your lender.8Fannie Mae. Uniform Residential Loan Application (Form 1003) The income fields should reflect grossed-up figures where applicable, and the asset fields should list every retirement account to support an asset depletion calculation if needed.
Alongside Form 1003, expect to provide:
- Your Social Security award letter, which confirms your monthly benefit directly from the agency.
- 1099-R forms for the previous two tax years, documenting pension payments and retirement account distributions.
- At least two recent months of statements for every checking, savings, brokerage, and retirement account.
- Federal tax returns for the most recent two years, used to verify the consistency of your income and cross-check the 1099-R forms.
Gather all of it before you start shopping for a lender. Incomplete documentation is the most common reason applications stall, and underwriters reviewing retirement-era income often request follow-up letters explaining large deposits or unusual transfers. Having your records organized from day one saves weeks.
The Reverse Mortgage Option for Buying
Buyers aged 62 and older can use a financing option younger buyers cannot: the Home Equity Conversion Mortgage for Purchase, or HECM for Purchase.9eCFR. 24 CFR Part 206 – Home Equity Conversion Mortgage Insurance This is a reverse mortgage designed for buying a new primary residence. You make a larger down payment upfront, and the loan balance grows over time as interest accrues. No monthly principal or interest payments are required for as long as you live in the home.
The upfront investment is substantial, typically 30 to 60 percent of the purchase price depending on your age and current interest rates. Older borrowers qualify for more favorable terms because the expected loan duration is shorter. The required investment can come from cash, proceeds from selling a previous home, or other personal assets.10eCFR. 24 CFR 206.44 – Monetary Investment for HECM for Purchase Program
Federal regulations require counseling with a HUD-approved housing counselor before you can obtain a HECM. The session covers alternatives, financial implications, and tax consequences.11eCFR. 24 CFR Part 206 Subpart E – HECM Counselor Roster The counseling requirement exists because reverse mortgages are complicated and the upfront costs, including an FHA mortgage insurance premium of 2 percent of the home’s value, are significant. The program works best for retirees who have substantial equity from a previous home sale, want to minimize monthly expenses, and plan to stay put for many years.
Tax Traps When Funding the Purchase
Pulling money from a traditional 401(k) or IRA for a down payment triggers ordinary income tax on the full withdrawal.12Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts A large lump-sum withdrawal can push you into a higher bracket for the year, which affects not just the tax on the withdrawal itself but potentially the taxation of your Social Security benefits and your Medicare premiums the following year. Being over 59½ avoids the 10 percent early withdrawal penalty, but the income tax hit can still be steep. Spreading withdrawals across two tax years, when timing allows, softens the blow.
Roth IRA withdrawals work differently. Contributions come out tax-free at any time, and earnings are tax-free if the account has been open at least five years and you are over 59½. For retirees who maintained a Roth, that is generally the most tax-efficient source for a down payment.
If you are selling a home to fund the new one, federal law lets you exclude up to $250,000 in capital gains from the sale as a single filer, or up to $500,000 filing jointly. You must have owned and lived in the home as your primary residence for at least two of the five years before the sale.13Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence For a married couple filing jointly, both spouses must meet the use test, but only one needs to meet the ownership test. Most retirees who have lived in their home for years will easily satisfy the requirement, and the exclusion often eliminates capital gains tax on the sale entirely.
One more thing worth asking about before you finalize a neighborhood: most states offer property tax exemptions, freezes, or deferrals for older homeowners, commonly starting at age 65 and sometimes as low as 55. Many programs impose income limits, typically in the $30,000 to $50,000 range, though some states have none. Benefits are not automatic; you apply through the local tax assessor’s office after closing. Deadlines are usually annual, so missing one means waiting a full year for the savings to start.