With mortgage interest rates hovering at or near historic lows, many senior or retired homeowners are taking advantage of these incredibly low rates-
- To buy a second/vacation home.
- For money for cash reserves or an emergency fund.
- To consolidate debt.
- To reduce monthly mortgage payments.
- To cash-out to remodel, among others.
Many seniors choose to downsize as they typically need less space, don’t want the responsibility of maintaining a large property, or understand that their retirement income will be reduced and fall short of the money needed to live in the property.
If you are in the market for a mortgage and about to retire, consider these essential issues –
Can I secure a mortgage if I am a senior?
Lenders will evaluate a senior borrower’s qualifications based on several relevant factors; however, age is NOT a factor determining one’s ability to qualify for a mortgage. ECOA – the Equal Credit Opportunity Act prohibits discrimination based on an applicant’s age when making a credit decision.
Senior borrowers will find that lenders evaluate the same criteria as any other borrower applying for a mortgage, which includes the applicant’s –
- Creditworthiness – this includes a credit score and history.
- Debt-to-Income Ratio – measures the applicant’s debt against their total income.
- Type and amount of Income and the presence of other assets, among other factors.
Is it a good idea for a senior to get a mortgage when retired?
Borrowers of any age should recognize that the ultimate financial decision regarding a mortgage must be based on the applicant’s specific financial scenario and objectives. In this regard, seniors should ask themselves –
- Would the surviving spouse/partner be able to manage financially if something happens to the other person?
- Would a mortgage free-up funds that may help pay obligations like taxes, healthcare, or insurance, among others.
- Will you be able to make the mortgage payment and other monthly bills comfortably?
What mortgages are available for seniors?
Because age cannot be a deciding factor in any credit decision, seniors have a wide variety of mortgage options from which to choose.
- Conventional Mortgage – A conventional mortgage is a non-government mortgage that typically requires a 20% down to avoid PMI. A conventional mortgage can be used for a purchase or refinance.
- Home Equity Loan – is offered as a lump-sum loan with a 10 – 30-year term.
- Home Equity Line of Credit (HELOC) – A HELOC works like a credit card — with a line of credit available when needed and potentially reusable.
- Home Equity Conversion Mortgage (HECM) or Reverse Mortgage – Insured by the federal government, the HECM is offered through FHA lenders. Reverse mortgage applicants must –
- Meet with a HECM counselor.
- Be at least 62 YO.
- The property must be your primary residence, among other criteria.
The Bottom-Line
Seniors who wish to obtain a mortgage have no reason to secure the home loan before retirement unless their financial situation will change and disqualify them from qualifying for the mortgage they need. There is a multitude of mortgage options for seniors who are retired or still working. Seniors just need to consult with a mortgage professional to determine what makes the most financial sense for their situation.
