Can you use pension income to qualify for a mortgage?

By Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience

Edited by Michael Jensen, Mortgage and Finance Guru

Updated October 20, 2020

As long as your pension income is permanent and not subject to an annual review and renewal then you can use the income to qualify for a mortgage.

When you apply for a mortgage using pension income, lenders request documentation to verify that the pension is permanent due to retirement or disability and not related to a temporary condition. If your pension income is contractually obligated to continue for at least three years, you can include it in your mortgage application.

Examples of pension documentation that mortgage lenders accept include: documents from the pension provider that outline the terms of the plan, award letters, tax returns and W-2s or 1099s. Lenders also typically require that you provide documents to confirm that you are currently receiving the pension income, such as your most recent payment or bank statement.

You can qualify for a mortgage with a pension as your sole source of income or you can add it to any other income you receive. The higher your pension income, the higher the mortgage amount you can afford. Please note that when you apply for a mortgage, the lender use your monthly gross income as opposed to your net income to determine what size mortgage you qualify for.

Use ourMORTGAGE QUALIFICATION CALCULATORto determine the loan you can afford with pension income

We should highlight that according to standard mortgage guidelines, you must have “unrestricted access without penalty” to the pension or retirement account funds. If the income from the account is derived based on the value of specific assets such as stocks or bonds, a 30% discount is applied to the value of the assets to determine the continuing income attributable to the account.

While this guideline typically only applies to individual IRA, 401(k), Keogh and other retirement accounts, as opposed to pensions, it is an important point to keep in mind if you want to use any type of retirement income to qualify for a mortgage.

The table below shows mortgage terms for leading lenders in your area. We recommend that you contact multiple lenders to understand how pension income can help you qualify for a mortgage. Shopping lenders is also the best way to save money on your mortgage.

Sources

"B3-3.1-09, Retirement, Government Annuity, and Pension Income."  Selling Guide: Fannie Mae Single Family.  Fannie Mae, October 2 2019.  Web.