What Are the Steps to Getting a Home Loan for Senior Citizens?
Regardless of your age, securing a home loan can take patience, persistence, and sometimes a touch of luck. Banks don’t like loaning money to people unless they are convinced there is little to no chance the person is going to default on the loan. Even for highly qualified homebuyers, the number of items that must be checked off a person’s list is long.
For someone later in life, this list is going to be even longer. It’s not impossible to get a home loan, but it’s a good idea to know what roadblocks may be in front of you before you start the process.
Do You Have the Income?
Probably one of the biggest requirements when looking for a home loan is showing proof of income. For younger individuals, a bank can easily see what their debt-to-income ratio is when determining how much they feel comfortable loaning out.
With someone who is at retirement age, this is not so straightforward. Even though you may have a pension, social security, or other streams of monthly income, it’s probably a fixed amount, with not a lot of room for more growth. If the markets take a downturn or you end up with an additional, unplanned expense like a health scare, your ability to pay your loan may not be as feasible as it is for someone who is younger and has more time and the ability to increase their monthly financial stream.
One way to alleviate a bank’s concern with your income would be to make your down payment as large as you can so that the amount you need to borrow is not as significant and therefore is a smaller risk to a lender.
Do You Have Some Assets? Or A Lot of Debt?
Similar to income, banks want to see what types of assets you have before determining how much they are willing to loan you. An individual who has a large nest egg that isn’t earmarked for anything specific may have a better chance of qualifying for a mortgage than someone who has money tied up in a volatile market or is only relying on their pension and social security to get by.
Likewise, a person who is asking for a loan while also carrying a significant amount of credit card, school, or other loan debt is not going to look as attractive to a bank when applying for more debt. According to the Balance, a lender won’t allow for more than 43% of your income to go towards your debts. Though these rules apply to all potential homeowners, the older you are, the more of a risk you pose to a bank if you don’t have the time or additional resources to offset your loan amount.
Before applying for a home loan, it may be a good idea to know what your credit score is, and clean up any debt before taking on more. Having a good nest egg will also help.
Do You Want Too Much?
As I already touched on, a person’s debt-to-income is a big deal when banks are trying to determine if you are a good candidate for the loan amount you are requesting. The more you want, the more you need to be able to show you’re good for it. Smaller loans are much easier to secure, as banks see them as something manageable, especially if you are on a low or fixed income.
No matter your age, there is always going to be a cap on how much a bank is willing to lend you. But, the older you get, the lower that cap is going to be.
When trying to qualify for a mortgage, a lender will usually not allow for more than 28% of your income to be spent on housing expenses. This includes your principal, interest, taxes, and insurance combined. So, the less you need to borrow, the more likely you will be able to secure the loan, regardless of your age.
Do You Have a Co-Signer?
Finally, another big factor in a senior citizen being able to qualify for a mortgage is whether or not they are doing it alone. Being able to use two social security incomes, two pensions, and two different investment portfolios – all of this is beneficial if you and your partner are applying for the loan together.
On the other hand, being half of a couple may pose some problems as well. If you or your spouse have had a history of debt problems and it has resulted in lowering your credit score, that will end up affecting both of you when it comes to the loan. There is also the unfortunate reality that if one of you were to pass away, there is an understandable concern as to whether the remaining person can handle the mortgage payments alone.
One way to increase your chances of obtaining a loan with a co-signer is to have a family member (child, niece, nephew, sibling) who is still working agree to sign the loan with you. Yes, the lending bank will still want to check their credit and all their documents as well, but they may have a better chance of helping you qualify than a spouse who is in the same or similar boat that you are.
What Are the Different Types of Home Loans Available?
Depending on your answers to the questions above, there are several options for obtaining a home loan, some of which may work better for you than others.
These are your basic loans, provided by a private lender. The term is fixed, and you usually need 20% down to qualify for these.
These are loans that are given in one big chunk, with a fixed rate and fixed monthly payments. You’ll probably need 20% down to qualify for these, like conventional loans.
Home-Equity Line of Credit
A HELOC works like a credit card. You have a set amount you can borrow, a certain amount of time to use it, and a certain amount of time to repay it. The rate is usually variable.
Home-Equity Conversion Mortgage
A HECM is a special kind of loan that allows you to use the equity in your house like cash. There are very specific guidelines for these loans and you must be at least 62 years old and meet with a HECM counselor before you can apply.