What is your criteria for screening RETIRED applicants

Question

Hi BP. Regarding retired applicants, do you still have to keep with the same qualifications? Do you keep with the 3x income?  I have an applicant that only has social security coming in and said they recently sold their home and have money in the bank.  Can you legally qualify retirees differently, since it is based on income not necessarily age?   Side note: They said they have a 800 credit score and are currently paying more a month.

Bettina F. · Answer

Ask for proof of funds and a SS award letter, or a bank statement that shows the amount of her SS.  You should still do credit and eviction check.

The 3 X rule is for the average person with car payments, credit cards, etc.  She may have minimal expenses.  Most of us oldsters drive paid for cars and rarely buy new clothes. Consider her total debt to income ratio.  If she is long on cash from just selling her house, ask for a double deposit.

Chris Mason · Answer

I agree with Bettina to consider DTI, not just HTI.

Another thing I'll add is that if you look at their tax returns, I'll bet you will see that she isn't paying taxes on a lot of her retirement income.

On my side of being a housing provider, we would "gross up" (I don't like that term, but that's what we use) the tax free income to basically simulate what it would be if it were normal taxable income. We consider it at 125% of face value.

So we treat $1000 of tax free income the same as $1250 of W2 taxable income.

Something else you could consider, that we as lenders do not consider, is that her retirement income is probably more stable than typical W2 income. Companies go bankrupt all the time, but the Social Security Administration doesn't.

Carolina E. · Answer

@Bettina F. Thank you for your reply.  Good idea on the deposit.  So I guess it is okay to qualify a retiree a little differently since it is a different situation?

Carolina E. · Answer

@Patrick M.  I don't think it's close with the way she sounded.  Not certain since it was a brief conversation she didn't give out numbers.  She wanted me to call her back and I want to make sure I know what I will say before I do.

Patrick M. · Answer

How close to 3x is she?

Carolina E. · Answer

@Patrick M.  Thanks for the response.  It sounds like she only has her social security coming in and that won't be enough for 3x.  She just has the money from selling her house, which I don't know how much that is.

Patrick M. · Answer

I keep the same criteria. I recently rented to a retired teacher and I confronted her about my concerns that her pension and SS were just shy of 3x. She then confided in me that she watches her grand-daughter and her daughter insist on paying her $1000 a month. Confirmed and that satisfied me. She is one of my best tenants and she is very active. (I know a lot of landlords fear retirees because they think they sit home all day and use the utilities and add to wear and tear.)

I am sure retirees have a lower spending limit- so maybe you can play with it a bit- I didn't want to take a chance.

What is your criteria for screening RETIRED applicants

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