Mortgages for seniors: Getting a home loan in retirement
We often think of homebuyers as younger, but retirees and senior citizens have plenty of reasons to make a purchase, too. Although the current housing market isn’t the best for buyers, waiting for it to change isn’t an option for some older house hunters. Here’s what to know about getting a mortgage as a senior.
Key statistics on seniors and mortgages
- Roughly two-thirds of adults who own a home have a mortgage, according to 2022 data from the U.S. Federal Reserve.
- The median mortgage in 2022 was $1,400 per month, based on data from the U.S. Federal Reserve
- Baby boomers carry an average of $190,441 in mortgage debt — the second-lowest balance, behind the Silent Generation, according to 2023 data from Experian.
- At 52 percent, baby boomers account for the largest generation of home sellers, according to the National Association of Realtors. They also account for the biggest cohort of homebuyers, at 39 percent.
- More than forty percent of people report that paying for housing negatively impacts their mental health, according to a Bankrate survey.
- Iowa is the No. 1 best state to retire to in 2023, according to a Bankrate study. Delaware, West Virginia, Missouri and Mississippi also rank highly. The worst states to retire include Alaska, California and New York.
Can you get a mortgage as a senior?
Yes, lenders offer mortgages for seniors. When it comes to getting a home loan, mortgage lenders look at many factors to decide whether a borrower is qualified — but age isn’t one of them. It’s one of the protected categories specified by the Equal Credit Opportunity Act, which makes it unlawful to discriminate against a credit applicant because of age (along with race, religion, national origin, sex and marital status).
Still, lenders can ask your age on mortgage applications, but only for the purpose of gathering demographic data, as specified by the Home Mortgage Disclosure Act (HMDA). The information is supposed to be confidential and not used as a criterion to approve or deny the applicant.
“The same underwriting guidelines apply to retirees and seniors as does to everyone else,” says Michael Becker, branch manager and loan originator at Sierra Pacific Mortgage in Lutherville, Maryland. “They must have the capacity to repay the loan — that is, have the income and assets to qualify.
“I once did a 30-year mortgage for a 97-year-old woman,” says Becker. “She was lucid, understood what she was doing and just wanted to help out a family member [by taking] some cash out of her home, and had the income to qualify and the equity in the home — she owned it free and clear. So she was approved.”
Is qualifying for a mortgage harder for seniors?
Despite laws prohibiting lending discrimination on the basis of age, it can still be challenging for seniors to qualify for home financing. In fact, a 2023 working paper out of the Federal Reserve Bank of Philadelphia found a link between the rejection rate on mortgage applications and the age of the borrower.
This could be for a number of reasons, including qualifying factors like assets and debt. If you’re managing a lot of debt already, you might not be able to take on a mortgage (or another mortgage), especially if you now have less income in retirement. No matter your age, you’ll still need to meet the lender’s criteria for approval.
How to qualify for a mortgage in retirement
When seniors apply for a mortgage, lenders look at the same financial criteria as they do for any other borrower, including credit history and score, debt-to-income (DTI) ratio, income and other assets.
Credit score
Here are the minimum credit scores needed based on loan type:
| Loan type | Minimum credit score |
|---|---|
| Conventional loans | 620 |
| FHA loans | 580 with 3.5% down payment, 500 with 10% down payment |
| VA loans | No minimum requirement, but generally 620 |
| USDA loans | No minimum requirement, but generally 640 |
Bear in mind that minimum scores can allow you to qualify for a loan in general, but you won’t get the best interest rates the lender has to offer. For a conventional loan, for example, you’d need a score of 740 or higher to nab a more competitive rate.
You can check your credit score for free each week by visiting AnnualCreditReport.com.
DTI ratio
Calculate your DTI ratio using this formula:
Some lenders allow a DTI ratio as high as 50 percent, but most prefer to see you spend less than 45 percent of your monthly income on debt payments, including your mortgage.
Income verification
Besides what’s required to prove your identity, you’ll need to supply documentation about your income. If you’re still working — and many are, according to a recent Bankrate survey — that includes paystubs, W-2s and tax returns. If you’re retired, it might include:
| Income source | Documents |
|---|---|
| Social Security | Copies of benefit verification, proof of income or proof of award letter, statements and/or tax returns |
| Pension | Copies of retirement award or benefit letter statements and/or tax returns |
| 401(k), IRA and Keogh distributions | Copies of statements and/or tax returns |
| Interest and dividends income | Copies of statements, 1099s and/or tax returns |
| Annuities | Copies of statements and/or tax returns |
| Rental property income | Copies of tax returns and/or current lease agreement |
| Disability | Copies of disability policy and/or benefits statement |
“Generally, two months’ of bank statements are needed to show those payments being deposited into the retiree’s account,” says Becker. “Since there is no paycheck, the bank statements serve the same purpose. The deposits have to match what the forms show.”
Investment income — capital gains, dividends, distributions and interest — is reported on your tax return. For the income to be used to qualify you for the loan, you’ll need to provide two years’ worth of returns.
“If the retiree has retirement income that is nontaxable, like Social Security income or tax-exempt interest, that income can be ‘grossed up,’ or increased 15 to 25 percent, depending on the loan product, to help qualify for the loan,” says Becker.
Should you get a mortgage in retirement?
In general, it’s best to avoid taking on more debt in retirement, when your income might not be as predictable as it once was. Using your retirement savings to pay down your mortgage can make it difficult to enjoy a comfortable retirement lifestyle and cover costs like medical bills.
“Even if one owns a property with no further mortgage payments due, property taxes and upkeep will be a consideration,” says Mark Hamrick, senior economic analyst and Washington bureau chief for Bankrate. “As with people of all ages, having a budget, limiting expenses and accurately accounting for income expectations are key.”
Then again, working hard to pay off your mortgage debt prior to retirement might not be the best strategy either. It could leave you financially vulnerable and unable to pay for emergencies.
However, taking out a senior mortgage can be a smart play for retirees who can afford to make a substantial down payment on a home. Along with a smaller loan, consider a shorter loan — say, a 15-year mortgage instead of the benchmark 30-year. Yes, your monthly payments will be higher, but your interest rate will be lower. You can also ask your lender about senior citizen mortgage assistance programs that are available in your state.
Be sure to consider your spouse or partner when deciding to get a mortgage. What would happen if one of you were to die, and how would that affect the survivor’s ability to repay the loan? If your surviving spouse or partner would not be able to take over the loan, getting a mortgage during retirement may not be a smart financial decision.
7 mortgage options for seniors
There are plenty of home loan options available to retirees or seniors — mostly the same as for anyone, with one exception. Here are seven to consider:
- Conventional loan: You can find conventional mortgages from virtually every type of lender, in terms ranging from eight to 30 years. If you’re not making a down payment or don’t have an equity level of at least 20 percent, you’ll need to pay private mortgage insurance (PMI) premiums.
- FHA, VA or USDA loan: These government-insured loans might be easier to qualify for than a conventional mortgage. You can only get a VA loan if you or your spouse has served in the military, however, or a USDA loan only if you’re buying in a USDA-approved area.
- Cash-out refinance: With a cash-out refi, you’ll get a brand-new mortgage and cash out some of your home’s equity in a lump sum.
- Home equity loan: A home equity loan is a lump-sum loan, usually with a fixed rate, fixed monthly payments and a term between five and 30 years. You’ll typically need at least 20 percent equity to qualify.
- Home equity line of credit (HELOC): – A HELOC is a variable-rate product that works similarly to a credit card — you’re given a line of credit to draw on as needed. You’ll have a certain number of years to draw the money, and then a certain amount of time to repay the loan.
- Reverse mortgage: A reverse mortgage is a loan taken out against your current home, in which a lender pays you monthly installments; these must be repaid, or the home surrendered to the lender, when you die or move out. To qualify, you must be at least 62 years old, own your home outright (or close to it) and live in the home as your primary residence. You’ll also have to pay for the property taxes, homeowners insurance, HOA fees (if applicable) and other upkeep on the home.
- No-document mortgage: A no-doc mortgage doesn’t require income verification. It’s an uncommon product, but it can be an option for borrowers who have irregular income.
Bottom line
Seniors with good credit, sufficient retirement income and assets and not a lot of debt can get a mortgage or home loan. The keys are knowing your long-term plans, exploring loan options and providing documentation to support your application. It’s also worth speaking to a financial advisor or retirement planner to prepare your finances for the new loan. If you’re acquiring or unloading property, you’ll want to revisit your estate plan, as well.
Frequently asked questions
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Lenders consider employment wages, Social Security payments, freelance income, part-time income, tips, pension and retirement income as income for loan qualification. They also count alimony and child support payments, unemployment benefits, investment income and disability leave.
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It’s possible to get a mortgage with Social Security as your only income, depending on how high your payments are. But like any borrower with a low income, you might not qualify for a large mortgage, and you may have to put down a sizable down payment to get approved. If you’re looking for mortgages for seniors on Social Security, ask lenders about their specific eligibility requirements before applying.
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