Not every customer shopping for a mortgage is a young professional or doe-eyed newlywed. Especially given the recent interest rates we’ve enjoyed lately, not to mention the tax incentives of homeownership, plenty of seniors are also in the market for mortgages — whether to move into a new home or refinance their primary residence or other current real estate holdings.
Homeowner seniors who have paid off a significant portion of their home loans — or who own their home free and clear — may also be interested in learning more about reverse mortgages, which can transform the value of your home equity into liquid, spendable cash.
No matter which option you’re after, here’s what you need to know about qualifying for a mortgage as a senior.
Can seniors qualify for regular, 30-year mortgages?
The short answer: yes! Senior citizens are absolutely able to qualify for a new mortgage, even if the loan term (the lifetime of the loan) seems likely to outlive them. (Thanks, Equal Credit Opportunity Act!) As usual, your lender will look at key borrower financial information such as your credit score and credit history, as well as your assets and liabilities. The good news is, by this point, you’ve had more time to pile up assets and pay down debts, so you’re likely to be in pretty good shape for the financial assessment as a homebuyer.
However, because retirees don’t typically have the same kind of income sources as working people do, there may be a few extra hoops to jump through when it comes to financial eligibility and the underwriting process.. Retirement accounts like IRAs, pensions, and other forms of retirement income do count when it comes to qualifying for a mortgage, but you’ll need to provide documentation proving you’re receiving one or more of these income streams. If you’re applying with your spouse, their financial information will also be considered, and a decision will be made based on the strength of your shared application. It’s in the lender’s best interest, after all, to ensure you can make your mortgage payments!
What about Social Security?
Good news: Social Security income usually can be used to help eligible seniors qualify for mortgage loans. In fact, because this income is usually not taxable, it can even count for 10-25% more than regular, taxable income would, a conversion known colloquially as “grossing up.”
Of course, as usual, you will be responsible for providing proof of your Social Security income, either in the form of a Social Security Benefit Verification Letter, IRS SSA-1099 Form, or proof of current receipt. Your underwriter may also ask for bank statements as part of the income verification process.
What do I need to know about reverse mortgages?
Although the name is similar, a reverse mortgage is a very different type of mortgage than a conventional home loan. In fact, it pretty much works in, well, reverse: instead of offering you money up front to purchase a home to live in, a reverse mortgage, otherwise known as a home equity conversion mortgage (HECM), converts the equity you’ve already earned in your existing home into liquid cash that you can spend. In order to qualify, you must be at least 62 years old. Keep in mind that you’ll still be responsible for expenses such as property taxes and regular homeowners insurance premiums, as well as any home maintenance and upkeep required.
A reverse mortgage can be a really helpful option for seniors on limited or fixed incomes who have a lot of their total net worth wrapped up in their home. However, like any loan, a reverse mortgage does come with costs, including interest, and decreases the value of the equity you’ve earned in your home. And, although your heirs won’t be responsible for paying off the loan if you pass away before repayment, they might lose their inheritance if the market value is equal to or less than the loan balance. In addition, there are other alternatives out there to help you translate your home equity into spending cash which may be worth consideration, like a home equity line of credit (HELOC). Depending on your needs, a HELOC may offer more flexibility and lower total debt.
There are so many options out there for seniors looking to purchase a home or convert their current home equity into cash to cover retirement needs. Sifting through it all on your own can can feel overwhelming — but Quontic is here to help.
As one of only 3% of U.S. banks with a CDFI, or Community Development Financial Institutions Fund, certification, Quontic offers a unique line of non-traditional mortgages, including our Community Development Loan, or CDL, which can help seniors qualify even if their income streams are irregular or limited. We also offer other types of loans, such as FHA loans, VA loans, and a conventional mortgage program.
Still have questions? Contact one of our mortgage specialists today!
Quontic Bank is not affiliated with or acting on behalf of or at the direction of Federal Housing Authority (FHA) or any government agency or government sponsored entity. All lending products are subject to approval. Rates, program terms & conditions are subject to change without notice. Not all products are available in all states or for all amounts. This does not represent an offer to enter into a loan agreement. Other requirements, restrictions & limitations apply. Information is accurate as of February 4, 2022 & is subject to change without notice.