Tuesday, May 17, 2022
HomeFinancingDown Payment AssistanceSeniors on Social Security can get mortgage and refinance loans

Seniors on Social Security can get mortgage and refinance loans

New house loans are being taken out by a growing number of seniors.

Many retirees no longer consider home ownership to be a priority.

The low borrowing rates and tax benefits that come with owning a home are attracting an increasing number of Americans.

A mortgage may be a better option than paying cash for a new home if you’re downsizing. Alternatively, rather than paying down a portion of your balance, you might refinance for reduced payments.

Even if you’re on Social Security, there are lots of home financing options for seniors today. Here’s what you need to know.

Is it possible to get a 30-year mortgage as an elderly person?

To begin with, if you have the financial means, no age is too old to buy or refinance a home. The ECO Act prohibits lenders from denying or discouraging someone from obtaining a mortgage based on their age.

If we just look at age as a factor, a 36–year–old and a 66–year–old have the same chances of getting a home loan.

The income, assets, debts, and credit requirements remain the same.

However, meeting those standards in retirement can be more difficult, particularly when it comes to money.

When qualifying for a mortgage loan, seniors should expect more scrutiny. You’ll very certainly need to produce additional documents to back up your multiple sources of income (retirement accounts, Social Security, pension, and so on).

It’s possible that there will be more hoops to jump through. You should be able to get a new home loan or refinance your current one if you have the cash to make payments.

Mortgages for Social Security receivers

Retirement or long–term disability income from Social Security can usually be utilized to assist qualify for a home loan.

As long as you’re currently receiving Social Security, you should be able to buy or refinance a home using that income.

Loan Choices

If seniors have significant assets, retirement savings, or investment accounts, they can easily exceed the income barrier for mortgage qualification.

In reality, there are programs intended expressly to assist seniors and retirees with house financing.

1. Loans for asset depletion

An asset depletion loan is a form of mortgage created for people who don’t have regular income and want to buy or refinance a home.

This is technically the same as a regular mortgage. The only difference is how your qualifying income is calculated by a mortgage provider.

Asset depletion mortgages allow borrowers to qualify for a mortgage based on their liquid assets rather than a steady source of income.

For retirees who don’t have enough income to qualify for a new home loan or a refinance, an asset depletion loan may be a good option.

2. Home-buying program for seniors

Under some conditions, both Fannie Mae and Freddie Mac have policies that allow eligible retirement funds to be used to qualify.

Lenders can utilize a borrower’s retirement savings to help them qualify for a mortgage, thanks to Fannie Mae.

If the borrower is already receiving retirement income from a 401(k) or other retirement plan, the borrower must show that the income will be sustained for at least three years.

If the borrower isn’t presently using the asset, the lender can calculate the potential income stream.

Meanwhile, Freddie Mac changed its lending criteria to make it easier for borrowers with low incomes but substantial assets to qualify for a mortgage.

To qualify for a mortgage, lenders can take into account IRAs, 401(k)s, lump-sum retirement plan distributions, and revenues from the sale of a business.

3. Investing in real estate

You can use your investment funds to qualify for a mortgage. However, lenders are unlikely to consider the entire asset value.

Lenders can only use 70% of the value of retirement accounts made up of stocks, bonds, or mutual funds to assess how many payouts are left.

4. Obtaining a mortgage with the assistance of a co–signer

Adding a co–signer is one of the simplest and easiest alternatives for seniors who are having problems meeting the income requirements.

This is something that some elderly parents are doing by including their children on their mortgage application.

A child with a good income can be considered alongside the parent, allowing them to buy a house even if they don’t have regular income.

5. Purchasing a home using non-taxable funds

Counting non-taxable income is another option for seniors.

Social Security benefits, for example, are usually tax-free. When calculating monthly income, most lenders can boost the amount of this revenue by 25%, a process known as “grossing up.”

Inquire with your lender about how nontaxable income is calculated

6. Reverse Loans

The reverse mortgage loan is a growingly popular mortgage product intended exclusively for elderly.

Reverse mortgages allow retirees to tap into their home’s equity by making monthly payments to the retiree. The interest is then postponed until the debt is paid off.

The amount due on the residence increases over time, but the quantity of equity declines.

Not everyone is a good candidate for a reverse mortgage. To assess the value of the property, another sort of loan, such as a home equity line of credit (HELOC), home equity loan, or cash–out refinance, is generally a preferable option.

7.  Property tax exemptions

Finally, as a senior homeowner, keep in mind that you may be eligible for a property tax reduction.

The rules for claiming your senior property tax exemption – as well as the amount by which your taxes may be reduced – vary from state to state.

The difficulties that the retirees and elders experience and encounters while applying for a mortgage

While there is no maximum age for applying for a mortgage, seniors and retirees may have a harder time qualifying.

Here are some of the obstacles you could face while buying or refinancing a home:

  • No consistent source of income
  • In less than a few years, your income will come to an end (retirement)
  • Getting access to retirement assets

When is the appropriate time to take out a new home loan as a senior citizen?

Rather than paying off their loan sum and rates or buying a new property with cash, more retirees and seniors are opting for a mortgage.

This will allow you to save money for other purposes. For senior citizens, the most expensive items are food, transportation, and long–term care.

Apart from freeing up assets, there are a number of reasons why elders might consider financing a new home purchase..

  • Sizing down – Empty nesters may choose to downsize in order to save money on square footage, maintenance, and mortgage payments.
  • Physical exertion – Cleaning and repairs can be physically demanding. 
  • Supplementing a fixed income — An increasing number of seniors are finding it difficult to make ends meet on their limited incomes. 
  • Moving to a new place – Retirees are leaving their home state in search of better weather, recreational opportunities, lower taxes, and other perks.
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