A couple in their mid-70s just recently purchased a home and got a mortgage to move closer to their children and grandchildren. They decided on Home Equity Conversion Mortgages (HECM) through FHA.

“They are now living in their dream home, near their family, have increased their retirement nest egg and have no mortgage payments for as long as they live in the home. That is why this 62-and-older couple chose to get a mortgage at this time in their lives,” says Bill Parker, senior loan originator at Wallick & Folk Inc. in Scottsdale, Ariz.

Can senior citizens get mortgages?

Senior citizens can get mortgage loans just like everyone else – it all depends on income, credit score, and cash available. Even seniors into their 90s can get mortgages if they qualify financially.

There are varying reasons for wanting a mortgage. Some seniors may want to downsize to a single-story home or a property that requires less upkeep or perhaps they want to be closer to family.

Some seniors even get mortgages to buy homes for their children who couldn’t qualify for a loan.

No matter the reason, senior citizens are more than able to qualify for a mortgage. According to the Federal Trade Commission (FTC), elderly people are protected against discrimination from getting a home loan or any kind of credit based on their age. It’s called the Equal Credit Opportunity Act, a federal law that protects borrowers against bias due to age, race, color, religion, national origin sex, marital status, or even those who get public assistance.

This means that all seniors are eligible to buy a home if they can qualify.

What loans are available to senior citizens?

The sky’s the limit when it comes to mortgages for seniors if they qualify and can prove they have enough regular income. That said, loan applications for retirees often look a bit different.

What loan term is best for seniors?

One thing for seniors to consider is how long a loan term they should get. For some, a 30-year mortgage may be a little long.

At the same time, a 30-year loan may be the best option for some based on its lower monthly payments.

The length of the term a senior gets could also depend on requirements that are specific to certain loan types.

Loan program options for seniors

Senior home buyers have all the same loan program options as regular home buyers. That mean that the best loan option will depend on the specifics of their personal finances including how much of a down payment they can afford to make or the amount they feel comfortable paying toward a monthly mortgage payment.

For seniors who can, a conventional loan is likely to be a great option.

But for seniors who may have a harder time qualifying for a conventional loan, there are a number of loan program options to help make home ownership possible.

Government home loans for seniors citizens

FHA loans

FHA loans, which are backed by the Federal Housing Administration, are an accessible option for home buyers who may be having a harder time coming up with the money for a down payment.

For borrowers with a credit score of at least 580, it’s possible to get an FHA loan with just 3.5% of the purchase price down. This can be a great option for senior home buyers who are buying a home for the first time.

VA loans

For senior homebuyers who have military experience, a VA loan can be a great option. These loans are backed by the Department of Veterans Affairs and offer a number of significant benefits, including relatively low interest rates, no down payment, and no mortgage insurance.

USDA loans

For seniors who live in rural areas, the USDA program offers zero-down payment loans to borrowers who make less than the median income for the geographic area.

Home Equity Conversion Mortgages (HECM)

For senior homebuyers who need another option, there is the Home Equity Conversion Mortgage. It can be a great option for borrowers who don’t meet the income requirements of a regular mortgage. That can happen when people are living on fixed incomes like pensions, retirement income, or Social Security.

Some senior homebuyers may find themselves in the same position as the couple Parker worked with. They already owned a home worth $550,000 and had no mortgage left on it. They netted about $525,000 from the sale of the house after paying a real estate commission and closing costs. The home they wished to purchase was listed at $605,000.

If not for the HECM, they would have had to use up all of their net proceeds plus another $100,000 of their retirement savings to pay the rest of the purchase price plus closing costs, Parker said.

Instead, they chose a HECM for about $355,000 on the new home, and they only needed $275,000 of the sale proceeds. This allowed them to not only leave their retirement savings intact, but they added the remaining $250,000 of the proceeds from the profits of selling their house into their retirement account.

HECM is a popular loan program option for qualifying senior citizens. If you are 62 or older, are a current homeowner, are residing in your home, and have paid off most or all your mortgage or paid down, you can participate in FHA’s HECM program.

This is FHA’s reverse mortgage program — the only such program insured by the federal government — and it allows people to purchase another primary residence if they have extra cash on hand to pay the difference between the HECM proceeds and the sale price plus closing costs.

Home equity loans for seniors

You could use a cash-out refinance but that resets the interest rate and the loan term on your mortgage. If you’ve got a mortgage you’re happy with then refinancing might not be the best option.

For senior borrowers looking to access their home equity, there are a couple of second mortgage options.

1. Home equity loan: This kind of loan will give borrowers a lump sum of cash upfront that they’ll then pay back at a fixed rate over a set period of time.
2. Home equity line of credit (HELOC): Unlike a home equity loan, this type of loan operates as a revolving line of credit, up to a set limit.

It’s important to remember that with a home equity loan, the loan is secured by your home, which means that your home could be on the line if you fail to repay. Given that, it’s important not to take a second mortgage on lightly and to make sure that you’re not using it for anything frivolous.

While it could be worthwhile to make necessary home improvements, it’s probably not the right type of loan for a new car purchase. It could be a good choice if you’re looking to pay off high-interest credit card debt but not if you’re simply going to run up the credit card balances again.

Mortgages are becoming more accessible to seniors

A few years ago, the biggest players in residential mortgages started allowing seniors to use imputed income from their retirement funds, IRAs and other retirement assets to qualify for the loan they wanted.

This policy change allows seniors to use the balances in these accounts to supplement their earnings on paper without ever taking out any money. Before this change, some seniors were turned down for loans because their debt-to-income didn’t match high standards even though they had great equity in their homes, had some savings, and had good credit scores.

Get advice before choosing a loan

Sometimes the elderly become prey to predatory mortgage lenders. Under the Truth in Lending Act (TILA), lenders have to disclose the cost and terms of a loan along with a lot of other information. The Real Estate Settlement and Procedures Act (RESPA) prohibits the payments of unearned fees and kickbacks.

According to the National Consumer Law Center, equity-rich and cash-poor elderly homeowners are a big target for unscrupulous mortgage lenders. It is recommended that before signing anything, you talk with a trusted accountant or attorney about the terms and costs any potential home purchase and new mortgage.