Mortgage Qualification on Retirement Income

Social Security income

Social Security retirement and disability income is fully countable as qualifying income. Lenders document it with the Social Security award letter or the most recent SSA-1099. If Social Security income is not taxable (which it isn't for many retirees), lenders can "gross it up" — increase the qualifying amount by 25% — to account for the tax advantage.

For example: $2,000/month in non-taxable Social Security income can be grossed up to $2,500/month for qualification purposes. This can meaningfully improve DTI.

Pension and annuity income

Pension income is documented with the pension award letter and recent statements. It must continue for at least 3 years from the date of the mortgage application to be counted. Annuity income is treated similarly — the payment must be documented and must continue for at least 3 years. Non-taxable pension and annuity income can also be grossed up by 25%.

IRA and 401(k) distributions

Regular distributions from IRAs and 401(k) accounts can be counted as income if they have been received consistently for at least two years and are expected to continue for at least three years. Documentation includes account statements showing the distribution history and the account balance.

If you haven't started taking regular distributions yet, you may need to establish a distribution schedule before applying. A one-time withdrawal does not count as qualifying income.

Asset depletion (asset dissipation)

For borrowers with substantial assets but limited monthly income, some lenders offer asset depletion qualification. This method converts liquid assets into a monthly income figure by dividing the asset balance by a set number of months (typically 360 for a 30-year loan).

Example: $720,000 in liquid assets ÷ 360 months = $2,000/month in qualifying income. This can be combined with actual income sources (Social Security, pension) to reach the required qualifying income. Not all lenders offer asset depletion — it is more common with portfolio and jumbo lenders.