So, what makes getting a mortgage different as a senior? It all depends on your motivation and finances.
Here’s everything you should consider before moving forward with a mortgage refinance as a senior:
Your Reasons For Refinancing
If you’ve lived in your current home for many years or have your mortgage paid off, you might wonder why you’d even want to refinance your home. Does it make sense to go through the entire mortgage process again?
For many seniors, the answer is yes. Reasons vary, but lots of seniors consider refinancing because they:
Realize a new mortgage would lower their interest rate
Want to change their loan term
Regardless of your motivation for refinancing, you’ll want to make sure your choice makes sense for your financial situation.
Your Assets, Income and Retirement Accounts
Most lenders like to see evidence of steady, reliable income from borrowers – and if you’re no longer working, it might be difficult for you to show regular cash flow when you apply for a refinance.
Luckily, many mortgage lenders now allow retirees to use income from their retirement assets to qualify for home loans. These assets include:
The type of investments you have may impact how mortgage lenders view your total income as a borrower. If you have accounts made up of bonds, stocks or mutual funds, lenders can only consider 70% of the value of those assets due to their volatility, so you may not qualify for as large of a mortgage as you initially thought.
Retirement Accounts
For your retirement accounts to help your application, you’ll need to demonstrate you can draw on these accounts without penalties for the next 3 years to support both normal living expenses and loan payments. You’ll also need to provide extra documentation on top of the standard mortgage paperwork to show you have access to these accounts.
Not retired yet but planning on retiring soon? Since lenders want to see evidence that senior citizens have finances to cover at least the next 3 years (either from their job or retirement accounts), you might be denied if you inform lenders you plan to retire sooner. Where possible, it might be best to wait and apply once you’re fully retired and can access your retirement accounts.
With that said, you aren’t required to report your planned retirement date. If you do plan on retiring soon, just make sure your finances can cover your mortgage payments once your regular income stops.
Your Thoughts About The Loan Term
Can a 70-year-old choose between a 15- and a 30-year mortgage? Absolutely. The Equal Credit Opportunity Act’s protections extend to your mortgage term. Mortgage lenders can’t deny you a specific loan term on the basis of age.
The loan term you’re comfortable with has much more to do with your finances than your age. Many seniors use a 30-year mortgage because of its relatively low monthly payments, but you might decide to use a 15-year or shorter term depending on your intentions for the house.
In most cases, you don’t need to worry about what will happen to your mortgage if you pass away before it’s paid off. Your loved ones can usually sell the house to repay the remainder of your loan, but if you want your family to keep the home, you may want to set up a life estate and put money aside or plan on using insurance to cover the mortgage.
Seniors and retirees can also refinance as a way to improve their financial situation. Whether you want a lower interest rate or an adjusted loan term, refinancing can sometimes give borrowers some financial relief.
Thanks to the Equal Credit Opportunity Act, a lender can't discriminate against an applicant due to age, says the Consumer Finance Protection Bureau (CFPB). You could be 99 years old and get a 30-year mortgage as long as you qualify.
Reverse mortgages are loans that allow seniors to take equity out of their homes to help pay for living expenses or other costs. As the equity in their home decreases, the amount of the loan increases. Unlike a traditional mortgage, seniors do not make monthly payments.
Being retired, you may have income sources that the lender will consider such as social security, pension, retirement distributions, investment income, annuity, spousal benefits as well as your assets when deciding if your eligibility for a mortgage.
Age doesn't matter. Counterintuitive as it may sound, your loan application for a mortgage to be repaid over 30 years looks the same to lenders whether you are 90 years old or 40.
Yes, seniors on Social Security can get a mortgage. Lenders often consider Social Security as a stable form of income. However, eligibility will also depend on other factors like credit score, other sources of income, and existing debts.
If your Social Security payments are high enough to meet your lender's income requirements, you can use it to qualify for a mortgage – even if it's the only source of income on your mortgage application.
A reverse mortgage is a type of loan that allows homeowners ages 62 and older to borrow against their home's equity for tax-free payments. The reverse mortgage lender makes these payments to the homeowner.
Most lenders consider pension, Social Security and investment income as your regular income. You may also be able to include your annuity, survivor or spousal benefits and retirement account income as long as you can prove it'll continue for at least 3 years. Your assets can contribute to your ability to get a loan.
A reverse mortgage is designed to allow seniors to access the equity in their home as cash paid by the lender. With this option, you can receive the funds in a lump sum or opt for monthly payments over a term or as long as you live in the home.
If you're in the market to buy a new primary home after age 60, you need to adjust your thinking a bit from when you were, say, in your 30s. The margin for error is much smaller now, and it will be harder to recover from a poor financial move. Proper risk management is key.
Retirement mortgages are home loans for retired borrowers. They don't require proof of a job or standard income documents like pay stubs and W-2s. However, you must prove you've reached the legal age to receive Social Security or retirement income.
For example, if your Social Security income is $2,500 per month, grossing it up by an additional $375 a month (15 percent of $2,500) will lend itself to an extra $20,000 of purchasing power, depending on the purchase price, loan amount, and total monthly mortgage payment.
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Introduction: My name is Cheryll Lueilwitz, I am a sparkling, clean, super, lucky, joyous, outstanding, lucky person who loves writing and wants to share my knowledge and understanding with you.
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