How to Get a Mortgage as a Senior

Dec 03, 2022 By Susan Kelly

It is recommended that homeowners pay off their mortgages before they reach retirement age so that they are not burdened with the responsibility of making significant monthly payments on a reduced income. Still, for some retirees, continuing mortgage payments may be the best option. Imagine a couple who decides to sell their home in order to simplify their lives and uses the equity they've built up over the years to acquire a sizeable sum of cash. If they don't utilize equity to buy a new property, they have more cash. The sum may be saved or invested to generate returns that may exceed the cost of mortgage interest. The money they have saved might be withdrawn gradually and used to supplement their retirement income. This post also puts light on the types of loans like USDA, FHA, or reverse mortgages for seniors.

Can A Retired Person Receive A Mortgage?

The key issue is, "Can you get a mortgage if you're already retired?" Experts in personal finance and the mortgage industry agree: yes. Two of the largest participants in the mortgage industry, Fannie Mae & Freddie Mac, agree. Mortgages from financial institutions and home finance businesses are purchased by these government-backed firms, providing they satisfy specific criteria.

To qualify for a mortgage, retired borrowers, like their working counterparts, need to prove that they have decent credit, not excessive debt, and just enough recurring income to service the mortgage each month since this is prohibited by the Equal Credit Opportunity Act. It's possible that showing evidence of earnings may be handled differently for retirees than it is for employed borrowers, but those who are eligible for a mortgage can even get one with a 30-year term. Lenders are not allowed to base their judgments on an applicant's expected lifespan. In order to know whether they will be approved for a mortgage after retirement, retirees and those close to retirement age need to know how lenders will assess their financial situation.

How to Qualify?

Obtain a Stable Source of Funding

While many retirees don't work at all, others do choose to work part-time. And if you don't work, how can you prove your financial stability? Lenders would likely look beyond the lack of regular paychecks if you can prove that you have a consistent monthly income. To a large extent, seniors are eligible for Social Security payments. More so, you may have:

  • Payments from a pension plan on a regular basis
  • Profits derived from investments held in a brokerage account
  • An IRA-style retirement plan

Have an Excellent Credit

No matter how old you are, a good credit score is necessary to acquire a mortgage. A credit score of 620 or above is required to qualify for a conventional mortgage, although a score closer to 700 is preferable. In point of fact, if you wish to be eligible for the most advantageous mortgage rates, you should go for a number in the middle to upper 700s or above. The easiest way to improve your credit score is to settle all of your payments on time and eliminate any outstanding debt you may have, such as a credit card balance.

Maintain a Low Level of Debt

The ratio of a borrower's monthly debt payments to their monthly income is another metric used by mortgage loan providers. How much money you owe compared to how much money you make. Maintaining a low value for this ratio is preferable since an increase in it indicates an increase in risk. Lenders may be skeptical that you can handle mortgage payments in addition to other loans if you already owe a substantial sum of money. The ratio of debt to income may be lowered in two ways: by eliminating debt and increasing revenue. It's possible that you'll need to get part-time work, at least briefly, to make ends meet.

Though you may anticipate greater difficulty in obtaining mortgages for seniors after retirement, you may be pleasantly surprised. Just try to improve your financial situation by increasing your income, improving your credit score, and decreasing your debt so that a mortgage lender would be more willing to work with you.

When It Comes To Mortgages, What Options Do Retirees Have?

Mortgage lenders may not refer to their products as "retirement mortgages," but they do adhere to income in retirement requirements established by Fannie Mae, Freddie Mac, the Federal Housing Administration, the Veterans Administration, and the United States Department of Agriculture. If you don't have a pension or Social Security earnings, or any typical source of retirement earnings, there are special programs that may help you transform your assets into cash.

Conventional loans

The businesses subsidized by the government, the housing market is stimulated by 3 percent down payment mortgages offered by Fannie Mae & Freddie Mac to retiree borrowers. Seniors who can put down 20 percent of the purchase price will not be required to pay mortgage insurance costs. Mortgage insurance shields lenders from financial losses in the event that a borrower defaults and the lender has to foreclose.

FHA loans

Retirees with lower-than-average credit may get FHA-insured mortgages with as little as 10 percent down. The minimum down payment required just a 3.50% credit score of 580. It doesn't matter how much of a down payment you make with the FHA; you still need to have mortgage insurance.

USDA loans

USDA loans demand no down payment for rural retirees. It's made for those with average or below-average incomes. Borrowers pay an up-front & yearly guarantee cost in place of mortgage insurance, and the property must be located in a USDA-approved rural development region.

Reverse Mortgages

A reverse mortgage allows homeowners 62 and older with at least 50 percent equity to turn their equity into a stream of income. The greatest advantages are that you don't want to have a steady source of income, you do not have to make a mortgage payment every month, and you'll simply have to pay your share of the property taxes and homeowner's insurance. We'll go into further information on reverse mortgages for seniors thereafter.

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