We often consider home buyers as young people – newlyweds and couples with small children – but the baby boomers actually make up the majority of home buyers in the US. This means that if you are considering securing a mortgage or borrowing from a home as an elderly person, it is important to carefully evaluate your credit and finances early in the process.
This is all you need to know about getting a mortgage later.
Important statistics on seniors and mortgages
Can I get a mortgage as an elderly person?
yes. When it comes to getting a mortgage or other housing financing, the mortgage lender is not taking your age into consideration. Equal Credit Opportunity Act makes discriminatory against credit applicants due to their age, along with race, religion, origin, gender and marriage status.
Lender can Ask the age of your application only for the purposes of collecting demographic data, as specified in the Housing Mortgage Disclosure Act (HMDA). The information is assumed to be confidential and will not be used to approve or reject the applicant.
“We’re looking forward to seeing you in the future,” said Michael Becker, branch manager and loan originator for Sierra Pacific Mortgage in Lutherville, Maryland. “They need to have the ability to pay off their loans, meaning they can qualify for their income and assets.
“I once got a 30-year mortgage for a 97-year-old woman,” he says. “She was clear, she knew what she was doing, and by kicking her family out of the house (by taking them), she had the income and fairness of the home to qualify, which she had free and clearly owned.
Is it more difficult for seniors to qualify for a mortgage?
Despite laws that prohibit discrimination from lending based on age, it can still be difficult for seniors to qualify for fundraising. According to a 2023 research paper from the Federal Reserve Bank of Philadelphia, mortgage applications rejection rates steadily rise as people get older. A 2021 survey published by the Urban Institute found similar findings, with the rejection rate for housing funding between 65 and 74 being 7% higher in a few years than the rejection rate for people under the age of 65.
In many cases, this is for several reasons:
- Elderly Americans may have retired and have fixed incomes, which is why some have a higher debt income (DTI) ratio than borrowers still working.
- A study by the Federal Reserve Bank of Philadelphia shows lenders can take into account the average life expectancy of borrowers, particularly if seniors are applying for a 30-year mortgage.
How to qualify for a mortgage after retirement
When an older borrower applies for a mortgage or another type of housing funding, the lender looks at the same financial standards as other borrowers, including credit history and scores, DTI ratios, income, and other assets.
Credit score
The minimum credit score required based on the type of loan is:
| Loan type | Minimum credit score |
|---|---|
| Traditional loans | 620 |
| FHA loan | 580 for a 3.5% down payment, 500 for a 10% down payment |
| VA loan | There is no minimum requirement, but generally 620 |
| USDA loan | There is no minimum requirement, but it is usually 640 |
Keep in mind that having a minimum score will allow you to qualify for a loan, but you will not get the highest interest rates your lender has to offer. For example, traditional loans require a score of 740 or higher to get a more competitive rate.
Visit our annual Creditreport.com to view our free credit reports each week.
DTI ratio
Use this equation to calculate the DTI ratio.
DTI = Monthly debt payments (including mortgage or rent) / Total monthly income x 100
Some lenders allow a 50% DTI ratio, but most prefer to pay less than 45% of their monthly income for debt payments, including mortgages.
Income verification
In addition to what you need to prove your identity, you will need to provide documentation about your income. If you are still earning income, and many seniors include PayStubs, W-2 and tax returns, according to the recent Bank Retirement Savings Survey.
If you retire, this includes:
| Source of income | document |
|---|---|
| social security | Copy of profit verification, proof of income or award letter, statement, and/or tax return |
| pension | Copy of your retirement award or benefits statement and/or tax return |
| Distribution of 401(k), IRA and Keogh | Copy of a statement and/or tax return |
| Interest and dividend income | Copy of the statement, 1099, and/or tax return |
| pension | Copy of a statement and/or tax return |
| Rental property income | Copy of your tax return and/or current lease agreement |
| hindrance | Copying Disability Policy and/or Benefits |
“In general, you need a two-month bank statement to show that these payments are placed in the retiree’s account,” Becker says. “Because there is no pay, bank statements serve the same purpose. Deposits must match what the form shows.”
Investment income – capital gains, dividends, distributions, interest – will be reported on your tax return. To use your income to qualify for a loan, you must provide two years’ worth of revenue.
“If a retiree has a retirement income that cannot be retired, such as tax-exempt interest, that income can increase “total amount,” or 15-25%, depending on the loan product, to help qualify for the loan,” says Becker.
Do I need to get a mortgage when I retire?
In general, if your income may not be as high as before, it is best to avoid taking on more debts at retirement. Using retirement savings to pay off your mortgage will make it difficult to enjoy a comfortable retirement lifestyle and cover costs like medical expenses.
Whenever you decide to get a mortgage or borrow against the home, be sure to consider a spouse or partner. If one of you dies during the loan period, can the survivor be able to pay off the loan? Take into consideration your life insurance and other financial support you can expect.
However, you may be in a position to assume mortgages and other household-related debts if:
- You are still working and you are hoping to continue earning above your current level, long enough to create a big dent in your mortgage balance.
- You’re leaving, but you can afford a substantial down payment and ideally a 15-year mortgage. Monthly payments are higher than a 30-year mortgage, but your interest rates will probably be lower.
Please note that monthly payments may be revised, but there is a high chance that insurance, property taxes, utility costs and regular maintenance will increase.
Home lending options for seniors
Elderly and retirees have the same mortgage options as borrowers, with one exception. The nine types to consider are:
- Traditional loans: You can find traditional mortgages from almost any type of lender, ranging from 8 to 30 years. If you have a down payment of less than 20%, you will need to pay a private mortgage insurance (PMI) premium.
- FHA, VA or USDA loans: These government insurance loans may be easier to qualify than traditional mortgages. However, you can only get a VA loan if you or your spouse serves in the military. You can also get a USDA loan if you are purchasing in a USDA approved area.
- Refinance cash out: With cash-out refi, you can get a brand new mortgage and earn a portion of your home’s capital in a lump sum.
- Home Equity Loan: Home Equity Loans are temporary thumb loans that typically have a fixed fee, fixed monthly payments and a term of five to 30 years. Typically, you need at least 20% of capital to qualify.
- Home Equity Credit Line (HELOC): HELOC is a variable rate product that functions similar to a credit card. If necessary, you will be given a line of credit to withdraw. You have a certain year to draw money, and a certain time to pay off the loan.
- Reverse mortgage: A reverse mortgage is a loan made to your current home, where the lender pays monthly installments. When you die or go outside, these must be repaid or surrendered to the lender. To qualify, you must be at least 62 years old, own or near the home, and live in your home as your primary residence. You will also be required to pay property taxes, homeowner insurance, HOA fees and other maintenance costs for the home, if applicable.
- No mortgage for documents: No income verification is required with NO-DOC mortgages. It’s a rare product, but it can be an option for borrowers with irregular incomes.
- Bank Statement Loan: Bank Statement Loans allow borrowers to qualify for a mortgage using a bank statement instead of a tax return or W-2.
- Asset-based loans: These products, also known as asset depletion loans, can qualify for funding based on assets, such bank and investment account balances.
