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Mortgages for Seniors – Enjoying Your Golden Years

July 6, 2024

There are various reasons seniors choose to get mortgages, from upsizing or downsizing to tapping into the equity they’ve built in their homes. While getting a mortgage after a particular age might seem challenging, as long as you meet the required eligibility criteria, there is no reason why you cannot qualify. Besides, given the different types of mortgages for seniors, qualifying for one might be simpler than you think.

Senior Homeownership and Mortgages in Numbers

Data released by the Federal Reserve Bank of St. Louis shows that there is a slight increase in homeownership rates from the 55-year to 64-year-old bracket to those aged 65 years or more. For example, 75% of 55-year to 64-year-olds in the country owned homes in 2020, when compared with 80% for those aged 65 years or older. In 2022, the numbers stood at 76% and 77% respectively.

Data compiled by Nation Swell highlights that the percentage of people aged 65 years or more who have mortgages has increased by 28.5% from 2000 to 2022. In addition, while mortgage debt is not common in this age bracket, 34% of people aged 65 years or more had mortgages in 2022.

A more recent post in the New York Times suggests that 40% of homeowners who are 64 years or older had mortgages in 2022.

Why Seniors Get Mortgages

While some people choose to get mortgages a few years before retiring, there are others who opt to take this path after retirement. In both cases, the reasons are varied.

• Moving to a new home. Oftentimes, seniors wish to move out of their existing homes. Some do it to downsize, either because of financial reasons or because their homes, without their children, are too large for their needs. Instances of seniors buying new homes to be closer to their kids and grandkids are also common.
• Reinvesting equity. Some older homeowners who have paid off their mortgages or have substantial equity in their homes might want to reinvest it to generate more income. However, in such a scenario, there is no guarantee that your investment will keep pace with your home’s growing value, so it’s best to consult a financial advisor in advance.
• Getting a lower rate. Refinancing can be a viable option for seniors who have not paid off their mortgages yet if they benefit from a lower interest rate. Lower rates that translate into lower monthly payments can be beneficial if you need extra money or are having trouble keeping up with your payments. However, you need to account for all the fees involved in the process to determine if you will come out on top.
• Dealing with financial problems. Given that many older people live on fixed incomes, keeping pace with inflation can seem daunting. It is not uncommon for seniors who find it hard to maintain their existing lifestyles to tap into the equity they’ve built in their homes so they may get access to the required funds. In this case, a reverse mortgage might be the order of the day.

The Equal Credit Opportunity Act Makes Age a Non-Factor

From the legal perspective, the Equal Credit Opportunity Act makes it illegal for a creditor to discriminate against an applicant based on age as well as national origin, religion, race, color, sex, or marital status. While you might need to provide some of these details as part of your application, the only purpose they serve is that of demographic data.

Whether you are close to retiring or have already retired, you may expect your application to go through the same underwriting guidelines. What’s important is that you should demonstrate your capacity to repay the money you wish to borrow, either in the form of income or assets. So, the answer to, “Can I get a 30-year mortgage at age 65?” is in the affirmative, provided you check all the boxes.

While the law stipulates that mortgage providers cannot use age as a qualifying factor when they access applications for credit, the fact remains that you still need to meet all the eligibility criteria of the type of mortgage you wish to get.

Is It Hard for Seniors to Get a Mortgage?

If you’re wondering “What is the oldest age you can get a mortgage?” know that you may apply for one even if you are in your 90s, as long as if you meet the requirements. However, while the law prohibits lending discrimination based on age, different findings indicate that some seniors might face challenges in qualifying for mortgages.

A study carried out by the Center for Retirement Research at Boston College points out that there is a direct correlation between rejection and age, one that does not work in favor of older applicants. However, it mentions this does not imply that lenders are in violation of the fair lending legislation.

Results of the study highlight that the law makes way for lenders to consider applicants’ ages in some circumstances. In addition, it takes into account the economic implications that lenders face because of mortality risk owing to which there might be a need for additional collateral.

A working paper by the Federal Reserve Bank of Philadelphia has also found a link between the age of borrowers and application rejection rates. It points out that the probability of rejection increases gradually with age, but accelerates during old age. One contributing factor can be the lack of ability to maintain properties.

Other factors that can play important roles in the outcome of your application include your existing debt and assets. For example, if you already have significant debt, a lender might feel that you may not be able to handle more debt, especially if you’re on a fixed income. 

Which Type of Mortgage Is Typically Offered to Seniors?

There is no single type of mortgage that lenders provide to seniors, and the options you get are largely the same as the ones that younger borrowers get. If anything, a few alternatives enter the picture only as you grow older. The most common types of mortgages for seniors include conventional loans, VA loans, and reverse mortgages.

Conventional Loan

A conventional or conforming loan is one that meets the guidelines set by Fannie Mae and Freddie Mac. Depending on the lender you select, you might be able to make a down payment as low as 3%. You typically need a credit score of 620 or higher to qualify.

VA Loan

The U.S. Department of Veterans Affairs (VA) backs these no-down payment mortgages for eligible existing and retired military personnel. If you qualify, you may use to proceeds to buy a new home or refinance an existing mortgage. While there is no minimum credit score requirement, the possibility of approval increases with a score of 620 or higher.

Reverse Mortgage

If you have built adequate equity in your home and are at least 62 years old, you may qualify for a reverse mortgage. The biggest advantage of this type of mortgage for seniors is that you don’t have to make any monthly payments. Instead, you receive money from the lender. In addition, there is no income-based eligibility criterion.

USDA Loan

The U.S. Department of Agriculture (USDA) guarantees USDA loans, and you may qualify for one as a low- to moderate-income borrower. The property you wish to purchase does not have to be rural. It can be in an eligible suburban area of a large city or a town with a population of up to 25,000. A credit score of at least 640 will hold your application in good stead.

FHA Loans

Backed by the Federal Housing Administration (FHA), FHA loans might work well for seniors with less-than-perfect credit scores. If your credit score is 580 or higher, you may make a 3.5% down payment. With a credit score of 500 to 579, the minimum down payment increases to 10%.

Non-Conventional Types of Mortgages for Seniors

Given that there is no particular type of mortgage that qualifies as the best mortgage for seniors, it makes sense to explore all possible options. Then, you may make a decision based on your specific situation. Moving beyond the traditional types of mortgages for seniors, here are the ones that not all lenders provide.

Bank Statement Loan

You may consider looking at what a bank statement loan has to offer if your income comes from non-traditional sources like Social Security, a retirement account, or rent. In this case, you may expect lenders to take your cash flow, savings, and assets into account, and you won’t need to present paystubs or W-2s. However, higher interest rates are typically part of the parcel. The minimum down payment may vary from 10% to 20%.

Asset Depletion Loan

An asset depletion loan lets high-net-worth individuals borrow money using the value of their existing assets like stocks and bonds as collateral. This loan allows you to keep ownership of the asset while accessing part of its cash value. In this case, you may apply for a mortgage and ask the lender to convert your assets into qualifying monthly income.

Cash-Out Refinance

The difference between a cash-out refinance and conventional refinancing is that the former replaces your existing mortgage with a larger loan, and you get the difference in cash. While you need significant equity in your home to qualify, Social Security income can also count as income if you’re applying for cash-out refinance.

Income-Based Documents You Need to Apply

Practically every type of mortgage for seniors requires that you provide documents to verify your income. The documents you need to submit depend on the type of income you earn.

• Social Security. You’ll need a recent receipt of income and a copy of your Social Security award letter. If you receive Social Security survivor benefits, you’ll need to show that you will continue receiving the income for three years or more.
• Supplemental Social Security Income (SSI). You need to provide a recent receipt of income and a copy of your Social Security award letter.
• Income from government, retirement, or pension. You need to provide an IRS W-2 or 1099 form, federal tax returns, bank statements showing the deposited income, a copy of the benefit statement/retirement award letter, and a statement from the income provider.
• Income from IRA, 401(k), or Keogh plans. In addition to the documents required for income from the government, retirement, or pension, you need to confirm that you will keep receiving the income for at least three more years. In addition, all the accounts in question should come with unrestricted penalty-free access.
• Income from interest and dividends. You need to submit copies of account statements along with copies of tax returns for the preceding two years.
• Income from VA benefits. You’ll need to verify that the income will stay in place for at least three more years and submit a letter from VA that confirms the income. This does not apply to VA’s retirement and long-term disability income.
• Income from long-term disability. You need to submit the income’s proof of eligibility and documents that outline the amount and payment frequency. You also need to verify that the income does not have a predetermined end date.

Conclusion

You can get a mortgage as someone who is retiring in a few years or has already retired if you meet the required eligibility criteria. More often than not, this requires having an acceptable credit score and enough income/assets.

Mortgages for seniors offer competitive interest rates and flexibility in terms. For example, you may get a conventional mortgage that allows you to make bi-weekly repayments or one that does not charge a prepayment penalty.

If you’re having trouble choosing from the different types of mortgages for seniors, consider discussing your situation with a reputable mortgage provider. Once you have all the information you need, you may make a suitable decision.