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.
Senior citizens can get mortgages just like everyone else – it all depends on income, credit score and cash available. Even seniors into their 90s can even 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 perhaps they want a home 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 loan or any kind of credit based on their age. It’s called the Equal Credit Opportunity Act, a federal law which protects borrowers against bias because of 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. 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.
Parker’s clients went with the HECM because they didn’t meet the income requirements of a regular mortgage. That can happen when people are living on fixed incomes like pensions, retirement accounts or Social Security.
Some seniors 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 option for 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, 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 sales price plus closing costs.
Mortgages Becoming Easier For Seniors To Get Approved For
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, that you talk with a trusted accountant or attorney about the terms and costs of buying a house and getting a mortgage.