Mortgages for seniors: Getting a home loan in retirement
Key takeaways
- Under the Equal Credit Opportunity Act, lenders can’t discriminate against applicants because of their age.
- As a result, seniors — like people in other age groups — can get mortgages if they meet a lender’s approval criteria.
- However, seniors may find it harder to qualify for a new home loan if they have a limited income, existing mortgage or other debt.
We often think of homebuyers as young people: newlyweds, couples with small children. But retirees and senior citizens have plenty of reasons to make a purchase, too. And they’re often serious about it. Even if the current housing market isn’t the best on the buy side, waiting for it to change may not be an option if they’re older. They want a mortgage now.
But does the mortgage industry want them? Some recent academic studies show that it may be tougher for seniors to qualify for mortgages, home loans and refis. So if you’re considering getting a home-related loan in retirement, it’s important to carefully assess your financials.
Here’s everything you should 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 data from the U.S. Federal Reserve.
- The median mortgage payment in 2022 was $1,400 per month, based on data from the U.S. Federal Reserve. But for loan applicants in October 2023, the median mortgage payment was $2,199, according to the Mortgage Bankers Association (MBA).
- Baby boomers carry an average of $191,557 in mortgage debt — the second-lowest balance, behind the Silent Generation, according to 2023 data from Experian.
- At 45%, 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 31%.
- More than 40% of people report that paying for housing negatively impacts their mental health, according to Bankrate’s May 2023 Financial Wellness Survey.
- Iowa is the No. 1 best state to retire to in 2023, according to Bankrate’s Best and Worst States to Retire 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?
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. Or it shouldn’t be. Age is 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).
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,” he continues. “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 financing. In fact, a 2023 working paper out of the Federal Reserve Bank of Philadelphia found the rejection rate on mortgage applications rises steadily as people age. An October 2021 study published by the Urban Institute had similar findings, with rejection rates for those 65 and up as much as seven percentage points higher than the denial rates for people under 65.
Some of the rationale is financial, with seniors and retirees having a high debt-to-income ratio, reflecting their smaller and often fixed incomes. But there could be another reason that does directly touch on age: the life expectancy of the borrower. It is “plausible … that lenders could be taking into account the costly effects of age-related mortality risk when making loan decisions,” as author Natee Amornsiripanitch notes in an article accompanying his Federal Reserve Bank paper. Apparently, weighing the odds that a borrower could die before a mortgage term ends does not violate the Equal Credit Opportunity Act, he adds.
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:
DTI = Monthly debt payments (including mortgage or rent) / monthly gross income x 100
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 seniors are, according to the recent Bankrate Retirement Savings 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.
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.
As with people of all ages, having a budget, limiting expenses and accurately accounting for income expectations are key.— Mark Hamrick, Bankrate Senior Economic Analyst
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.
Mortgage options for seniors
There are many types of home loans for seniors or retirees — 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.
FAQ about mortgages for seniors
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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 benefits and your loan 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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