Housing, particularly in the United States, has a fairly predictable lifecycle. The reason is that most homebuyers who buy a house finance that purchase with a mortgage earlier in life and therefore engage in a long-term financial obligation in which they ‘agree’ to accumulate equity in their home. The RefiGuide can help you learn more about HELOCS and home loans for seniors.
Government home loans for seniors and the elderly are different. They not only completely reverse that cycle, but some seniors may have no long-standing tenure in a home that’s about to be downsized, which is common among their age group (and therefore they have no equity to put toward a new mortgage). Instead, they’re buying into the market at a much later stage, where certain constraints may cause difficulties in obtaining and paying down a senior home loan.
Are There Special Home Loans for Seniors?
Yes, the are special private and government home loans for seniors that have a proven track record, but they are not for everyone.
Retirees and senior citizens have various home loan options available to them.
Let’s explore a few that could be a good fit, keeping in mind the challenges we previously discussed.
Conventional Mortgage A conventional loan is a mortgage not backed by the federal government, typically offered by private lenders such as banks, credit unions, or other financial institutions. These traditional loans can be either conforming or nonconforming. A conforming loan meets the guidelines to be secured by Fannie Mae or Freddie Mac, while non-conforming loans do not. For many senior citizens, it’s financially advantageous to make a down payment of at least 20% with a conventional loan. Doing so helps avoid the need for private mortgage insurance (PMI), which can increase monthly payments.
Home Equity Loan The home equity loans are referred to as a second mortgage, allows you to borrow money using the equity in your home as collateral. The loan amount is determined by your home’s value minus what you owe. Senior home equity loans are repaid through fixed monthly payments, similar to a primary mortgage. The equity loan is considered a popular alternative to the cash out refinance.
Home Equity Line of Credit (HELOC) The HELOC loans is a flexible type of home equity loan that functions as a revolving line of credit. This option is suitable for seniors who need funds over time, such as for home improvements or paying off debt. A HELOC enables Seniors to tap into their home’s equity as needed, but it’s important to carefully evaluate your financial situation before choosing this option, especially as a senior. FHA offers a home equity conversion mortgage or HECM that is very popular. Learn more about FHA loans for seniors.
Reverse Mortgage A reverse mortgage is specifically designed for seniors aged 62 and older. It allows homeowners to convert a portion of their home equity into cash without requiring monthly mortgage payments. These government home loans for senior citizens can be a valuable option for retirees looking to supplement retirement income, lower their existing mortgage payments, or cover costs like in-home care. To qualify, the borrower must have sufficient home equity and use the home as their primary residence. Additionally, the borrower must complete a financial assessment to ensure eligibility for a reverse mortgage. Retirement savings is not a factors with this type of senior home loan program. Ask the loan officer about closing costs. Remeber there are no mortgage payments with reverse home loans.
Mortgage Debt Among Older Americans
It’s been called “the hidden retirement crisis” or “retiring in the red.” In short, rising costs for housing and health care, combined with other issues such as low wages and declining retirement wealth, have eroded the economic security of older households across the country.
It means that home equity must be tapped to pay for the cost of living, and it’s one side of the coin when it comes to talking about mortgage debt among older Americans.
When they’re forced to sell after living in a home for many years — a place where they’ve raised children and created a lifetime of memories — restructuring of debt by selling that home can be an emotional and financial burden.
Consider this scenario: A couple entering their golden years are both about to retire but have several years of payments left on their mortgage. They’re conflicted about whether it makes sense to try and pay down the mortgage debt with retirement funds and move, or stay in the home until the principal payments are finished. At the same time, they’re nervous about not having enough money to keep up with the mortgage if money is needed for other expenses.
This scenario has been playing out in real-time, and CNBC recently reported that debt among older Americans has skyrocketed 543% over the last two decades. Researchers at Boston College also report fewer homeowners paying off their mortgages in retirement.
By contrast, there are seniors and elderly homeowners who wish to procure a home loan and yet wonder if they can get mortgages just like everyone else.
Can Senior Citizens Get Mortgages?
Senior citizens and the elderly are not excluded from purchasing a home and obtaining a mortgage. For any loan officer or lender to discriminate against a homebuyer based on age would be a violation of the Federal Trade Commission’s Equal Credit Opportunity Act, which is a federal law protecting borrowers against bias due to age, race, color, religion, and more.
A senior citizen’s ability to procure a mortgage, like any other homebuyer, will depend on potential income, assets, and credit score. Rest assured, even seniors aged into their 90s can get a mortgage as long as they meet the qualifications.
The biggest hurdle for seniors is obvious — many no longer work or earn a salary or regular wage. That means that lenders will consider things like Social Security income, pensions, and any money that is likely to continue.
Above all, retirees attempting to qualify for a mortgage should understand how lenders will evaluate them.
Home Loans Available to Senior Citizens
Seniors looking for home loan options have two key places start — Fannie Mae and Freddie Mac. These are government entities regulating the housing market, and (to a degree) both also allow eligible retirement assets to be used to qualify for a home loan for seniors.
According to The Mortgage Reports, Fannie Mae will let lenders consider the assets (or monetary value) of an applicant’s retirement account such as a 401(k) to help them qualify for a mortgage.
Similarly, lending guidelines for Freddie Mac have made it easier for lenders to qualify an applicant with limited incomes but substantial assets in retirement accounts.
There are rules to consider with both programs, including the fact that any cash withdrawn from these accounts must not be subject to penalty, and not otherwise be used as a source of income. Many senior homeowners choose HELOC and home equity loans for cash out.
Any senior holding stocks, bonds, and mutual funds can also talk to lenders about having those assets considered. Additionally, seniors having trouble qualifying for a loan can always add a co-signer on a standard mortgage. Home equity conversion mortgages can also be an option (more on that below).
Is it Difficult for Seniors to Get Approved for a Mortgage Loan?
While there are some challenges for senior home loans to be mindful of. One key concern for lenders is verifying income. Since many retired seniors no longer receive a regular paycheck, proving a consistent income stream can be more difficult. When seniors are applying for mortgage loans, income might need to be demonstrated through a combination of Social Security, pensions, and retirement savings.
Another factor is the applicant’s age in relation to the loan term. Although there is no legal maximum age for obtaining a mortgage—thanks to the Equal Credit Opportunity Act—a lender might be cautious about granting long-term loans to older borrowers. For example, a 67-year-old woman can technically get approved for a 30-year mortgage, but some lenders may have concerns about the borrower’s ability to repay over an extended period. In such cases, a Sr. mortgage lender may require a co-borrower to ensure the loan is covered if the primary borrower passes away before the home loan is fully repaid.
Seniors may also have significant assets, but lenders could hesitate if those assets are not easily liquidated. For instance, funds tied up in retirement accounts may not be viewed as immediately available for making mortgage payments.
A Reverse Home Loan: Not the Same As Other Mortgages
When seniors and their family members hear the phrase ‘reverse mortgage‘ it’s possible nothing good comes to mind. That’s because reverse mortgages increased more than 1,300% between 1999 and 2008, according to the Federal Bureau of Investigation. This created significant opportunities for fraudsters who stole equity from the property of unsuspecting seniors or used them to unknowingly aid in stealing equity from a flipped property.
In many of these scams, victims said they were offered free homes, investment opportunities, or even foreclosure or refinance assistance. The FBI determined the victims were being targeted through television, radio, billboards, and through the mail, as well as at local churches or disguised investment seminars.
While reverse mortgages aren’t illegal, experts say they’re almost never a good idea. Why? Reverse mortgages borrow against the value of the home, and they’re also the opposite of cost-effective. Business Insider suggests shying away from any such deal requiring additional premiums and fees the way a reverse mortgage does.
But there is a slightly different alternative.
A legitimate reverse mortgage option, the Home Equity Conversion Mortgage (HECM ), is the only reverse mortgage insured by the Federal Housing Authority (FHA) and the Department of Housing and Urban Development. It enables eligible senior homeowners to tap the equity in their homes without incurring a monthly payment. Borrowers must be 62 years or older, own the property or have a small mortgage balance, and live in the house as a primary residence.
HECMs are only available through FHA-approved lenders and have other qualifications. The amount of equity available for withdrawal will vary by the borrower.
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The Bottom Line with Senior Home Loans
Seniors, more than others, should find a trusted financial adviser or lawyer if they’re looking for any type of mortgage product. This means going beyond family and friends to get advice — for everyone’s protection. This will ensure the senior is getting help from someone trusted and impartial, with no financial stake in the outcome of a mortgage application, investments, and more. You should discuss lending opportunities for home loan senior citizens programs with trusted lenders and banks that have experience with these types of loans for the elderly.
Seniors should follow the advice they’re given to prevent being taken advantage of. A few tips from a professional might include:
- Remembering that if a deal (like a reverse mortgage) sounds too good to be true, it likely is.
- Hiring an attorney to read and understand all contracts and paperwork before anything is signed.
- Getting a market analysis of any property they wish to sell or make an offer on.
- Searching for the assessed values of homes in the area to get a better understanding of what a property should be worth.
- Asking neighbors about comps in the area.
Remember, reputable mortgage lenders have loan options that make it possible for seniors and the elderly to buy a home. However, not all lenders have experience in issuing mortgages to this age group.
Prior to choosing a lender, seniors should find out how the lender qualifies retirement income, how they calculate other qualifying income, and how often they’ve put together homebuying packages for older buyers. Always read the fine print with home loans for seniors online and in person before signing legal documents.
Doing a little homework and asking questions upfront will help a senior find an experienced lender and offer peace of mind going forward with a mortgage application.
References
About RefiGuide
Bryan Dornan is a financial journalist and currently serves as Chief Editor of RefiGuide.org. Bryan has founded several mortgage and marketing companies and has worked as a loan officer and mortgage broker in the industry for over 25 years and has a wealth of experience in providing mortgage clients with the highest level of service in the industry. Bryan's continual focus is to promote affordable home-ownership to consumers like you across the United States. He also writes for RealtyTimes, Patch, Buzzfeed, Medium and other national publications. Find him on Twitter, Muckrack, and Linkedin
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