Finance & Loans

New rule to help borrowers

In order to qualify for a new mortgage to buy a home or to refinance an existing home loan, a borrower needs to prove to the lender that he or she or together they have adequate income and be able to repay the loan over time. This has been a problem for many retirees who are receiving a retirement or Social Security benefit but has adequate savings for collateral for a new or refinancing an existing mortgage. Many would like to take advantage of the historically low mortgage interest rates. A new rule change that went into effect in spring 2011 will help many with a substantial nest egg to overcome the situation.

Freddie Mac that guarantee many mortgages now allow lenders take funds in retirement accounts to qualify for a new mortgage or to use it when considering an existing mortgage for refinancing. Assets that will qualify under the new rule include IRAs, 401(k) funds, 457 funds, annuities, and lump-sum distribution accounts. Lenders will calculate funds in these accounts as well as monthly Social Security benefits, dividend income, pension distributions and other retirement payments when calculating how much to lend. One problem with this approach is lenders may require larger down payment such as 30 percent.