Tips For Getting A Mortgage
- A financial advisor can help you get your financial house in order before you apply for a home loan. This may include setting a budget, saving for a down payment and analyzing your monthly expenses. Finding a qualified financial advisor doesnt have to be hard. SmartAssets free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If youre ready to find an advisor who can help you achieve your financial goals, get started now.
- Speaking of setting a budget, SmartAssets mortgage calculator can help you estimate how much your monthly payment will be based on the price of the home and the size of the loan youre getting from a lender.
- Before selecting a lender, be sure to shop around for a low interest rate. SmartAssets mortgage comparison tool will help you assess your options on the market and hopefully find a lender that suits your needs.
Maximize Your Appraisal Value
The appraisal is an important part of the refinancing process. During an appraisal, an appraiser will tour your property and give you an estimate of how much your home is worth. Maximizing your appraisal value can increase your chances of qualifying for a refinance. This is especially true if you want to take cash out of your equity.
Use these simple tips to increase your home’s value before your appraisal:
- Increase your curb appeal: Your curb appeal has an impact on the value of your home. Take a tour of the exterior of your property and see where you can make improvements. Paint fencing, plant flowers and power-wash walkways and hardscaping to improve your homes curb appeal.
- Your appraiser wont deduct points if you havent done the dishes or if you have a few books lying around. However, can make your rooms look larger and make your home feel more comfortable. Take a walk through each room a few days before your appraisal and make sure that everything is clean.
- Create a list of upgrades: Permanent upgrades youve made to your home increase your appraisal value. Create a list of them and give it to your appraiser. Some examples of permanent upgrades include installing a home security system, replacing old appliances and adding a pool. Dont include removable or aesthetic upgrades like painting a bedroom, putting up wallpaper or hanging mirrors.
Can Seniors Get Mortgages
The Equal Credit Opportunity Act was enacted to prohibit discrimination in lending practices based on race, color, religion, national origin, sex, marital status, or age. Under ECOA, a creditor may not discriminate against an applicant for a credit transaction based on any factor unrelated to the applicant’s creditworthiness.
Mortgage lenders are required by law to consider all applicants for home loans equally, regardless of their age. Despite this protection from discrimination, some older Americans have reportedly been denied mortgages due to their age. If you have been denied a mortgage because of your age and believe that you have been treated unfairly, you may be able to take legal action.
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Avoid Tapping Retirement Funds
Generally, it’s not a good idea to withdraw from a retirement plan such as an individual retirement account or 401 to pay off a mortgage. If you withdraw before you turn 59½, you both incur taxes and early-payment penalties. Even if you wait, the tax hit of taking a large distribution from a retirement plan could potentially push you into a higher tax bracket for the year.
It’s also not a good idea to pay off a mortgage at the expense of funding a retirement account. In fact, those nearing retirement should be making maximum contributions to retirement plans.
Over the past several years, research has shown that the majority of people are not saving enough for retirement. In a September 2018 report, the National Institute on Retirement Security revealed that more than half of working-age people don’t have a retirement account. The report adds that even among workers who have accumulated savings in retirement accounts, the typical worker had a modest account balance of $40,000.
What Factors Into My Personal Mortgage Rate In Canada
Factors such as credit score and income play a big part in qualifying for the lowest interest rate. The riskier a borrower appears, the higher the interest rate can be. Rate is definitely not the most important aspect of a mortgage, however, as many rock-bottom rates often come from no-frills mortgage products. In other words, even if a borrower qualifies for the lowest rate, they must often give up other features such as prepayments and porting privileges when opting for the lowest-rate product.
There are many other ways to save money over the mortgage term instead of taking the lowest rate, including rounding up mortgage payments or making lumpsum payments when bonuses, etc are received throughout the year. Its important, however, not to exceed the allowable limit on annual extra payments with your lender.
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Renting A Retirement Home
Some seniors may find it makes more sense for their lifestyle and finances to rent a retirement home or apartment. Renting means you may not have to deal with maintenance issues. Renting can also give you more flexibility to move around. If you don’t already own a home, renting may be a better option.
Keep in mind that landlords can raise your rent or ask you to vacate, too. Renting can be less stable since owning a property could allow you to lock in a low monthly mortgage payment with a great interest rate.
- Pros: You’ll be able to move more easily and won’t have to worry about maintenance issues
- Cons: Doesn’t provide the same long-term stability as owning a home
Potential Challenges For Senior Borrowers
The Equal Credit Opportunity Act helps senior borrowers from being discriminated against when getting a home loan but applying for a mortgage or refinance may present specific challenges that not all borrowers may face.
The most prominent challenge that senior borrowers may face is the lack of regular income, as lenders need to ensure that you can pay for your loan. Because most seniors and retirees do not have a monthly income-based W2 tax form to show and typically do not have consistent cash flow, theyll will need other paperwork to prove that they would be able to repay the home loan.
Fortunately, lenders can consider paperwork from retirement accounts, such as a 401 or an IRA. However, another challenge that seniors and retirees may face is accessing the funds within those retirement accounts before a certain withdrawal date. If the funds are not fully accessible when a senior is applying for a home loan, they cannot qualify for a loan based on those retirement accounts as the money must be accessible without penalties.
For those who are planning to retire soon and need a home loan, mortgage lenders typically wont consider an income unless the lender can prove that it should continue for at least 2 more years. If someone retiring in the next year or two is considering taking out a home loan, they need to consider this before applying.
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Can I Get A Mortgage If I Am 75
You may be eligible for a mortgage at age 75, depending on which type of mortgage you want to take out, how long you want to take out the mortgage for and a number of other factors which are explained below. In fact, we can support borrowers from the age of 55 onwards who are looking at their options in retirement!
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What Happens To A House When The Owner Passes Away
If you pass away with an active mortgage, it doesnt necessarily become your familys burden. However, if the mortgage had a co-signer they would be completely responsible for paying the mortgage.
The person that inherits your home will be able to decide if they want to keep the home for themselves. In that case, theyll take over the mortgage right away. If no one takes the mortgage, your mortgage servicer will foreclose the home. No ones credit score will be harmed during this kind of foreclosure.
Non-married live-in partners, no matter the relationship, will not inherit the property over your family unless specifically defined in your will. State laws generally consider only your legal relatives when dividing your property.
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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
- Getting access to retirement assets
Is It Harder To Get A Mortgage When You Are Older
If were basing eligibility on age alone, a 36yearold and a 66year old have the same chances of qualifying for a mortgage loan. The qualifying criteria remain the same: income, assets, debts, and credit. However, it can be tougher to meet those criteria in retirement especially when it comes to income.
Is there an upper age limit to get a mortgage?
There is no upper age limit on buying a house, but should you need to borrow, the terms of your mortgage will need to consider your personal and financial circumstances and are subject to differing criteria. There is however a lower age limit on buying a house you do need to be 18 years old or above.
Can someone on Social Security buy a house?
Social Security does not prohibit an individual from using their disability benefits to buy a house. SSI disability beneficiaries can own the home and land they live on, but other property will be counted as an asset. And to receive SSI, you cant have over $2,000 in assets .
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Strategies To Pay Off Or Reduce Your Mortgage
You can use a few strategies to pay off a mortgage early or at least reduce your payments before retirement. Making biweekly payments instead of monthly ones, for instance, means that over a year you’ll make 13 payments instead of 12.
You can also refinance your mortgage if doing so would help shorten the loan and lower your interest rate. Although it could be helpful in the long run, refinancing could also hurt your net worth. Remember, a mortgage new or old is a liability to your household, subtracted from a households assets.
If you have a larger home, another option is downsizing by selling your home. If you structure the sale correctly, you might be able to buy a smaller home outright with the profit from the sale, leaving you mortgage-free. However, the pitfalls include overestimating the worth of your current home, underestimating the cost of a new home, ignoring the tax implications of the deal, and overlooking closing costs.
Although paying off a mortgage and owning a home outright before retiring can provide peace of mind, it’s not the best choice for everyone. If you’re a retiree and or a few years away from retirement, it’s best to consult a financial advisor and have them carefully examine your circumstances to help you make the right choice.
Qualifying Based On Income
The most common way for retirees to get a mortgage is by qualifying based on income, said certified financial planner Daniel Graff, a principal and client advisor at Sullivan, Bruyette, Speros & Blayney in McLean, Virginia.
Lenders generally will look at your last two years’ worth of tax returns to see what that amount is. It may include, for instance, Social Security, pension income, dividends and interest.
However, your taxable income may not be enough to qualify for the loan on its own. That’s where a retirement account like a 401 plan or individual retirement account can come into play.
“You basically create more cash flow to satisfy the lender,” said CFP David Demming, president of Demming Financial Services in Aurora, Ohio.
The idea is that you take distributions to help you qualify for the mortgage, even if you don’t really need the money. As long as you’re at least age 59½, you can tap your IRA or 401 plan without paying a 10% early-withdrawal penalty.
And, under rollover rules applying to retirement accounts, you can put the cash back within 60 days without the distributions being taxable. Beyond that time frame, however, the withdrawals would be locked in and you’d owe income taxes on the money.
Meanwhile, the lender would see the income on your bank statements, where the money came from and when it hit your account.
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Determine Your Income After Retirement
A homebuyers income is another important factor when applying and qualifying for a mortgage. When evaluating a mortgage application, lenders typically require income documentation going back two years. However, if you retired more than two years ago, this may not be as straightforward as providing copies of your W-2s. Instead, youll need to show evidence of Social Security, pension income, dividends and interest payments.
Alternatively, you can rely on your retirement or other assets to establish a monthly income using one of two methods:
- Drawdown on retirement. A drawdown on assets method is considered the best option for retirees without any Social Security or pension income. Borrowers who are at least 59.5 years old can use retirement account withdrawals as proof of income. Under this approach, a retired homebuyer who withdraws $5,000 from an IRA each monthfor a minimum of two monthsis seen as having $5,000 in monthly income.
- Asset depletion. To use this method of income, add the current value of all your financial assets and subtract any portion of the assets you plan to use for a down payment or to cover closing costs. Finally, calculate 70% of the remaining value and divide that number by 360 months to calculate income over the course of a 30-year mortgage.
How Do I Qualify For A Home Loan For Seniors/retirees
As mentioned earlier, your age has no bearing on your ability to apply for a loan. Lenders consider the same criteria when reviewing the loan application of a 30-year-old as they do a 65-year-old. Those criteria are:
- Your income and total assets
- Your credit history and credit score
- Any outstanding debts you may have
As you can imagine, it may be tougher for a senior or retiree to meet these criteria considering their limited fixed income. But its not impossible.
You can find home loans for seniors on Social Security as long as your monthly income meets the lenders requirements.
Lenders simply want to make sure you can repay the loan. If your Social Security income, pension income, and retirement accounts meet the lenders requirements you should have no problem finding home loans for seniors on Social Security.
In some cases, senior citizens on the verge of retiring can even consider pension-advance loans to get cash now in exchange for a percentage of the borrowers future pension payments.
However, many experts advise against this.
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Buying A Home With Investment Money
Are you a senior looking to purchase a home but is finding that your down payment is a little too high? You may be able to use investment funds to qualify for a mortgage. Investment funds can include money from stocks, bonds, or other investments. This can be a great way to get into the home of your dreams without having to save up for years. Talk to your lender about how investment funds can be used to help you obtain a mortgage.
Things To Consider When Deciding Where To Live After You Retire
Thinking through your future plans and needs now can help you make a better buying decision. Here are some things to consider when looking at your retirement housing options:
- What sort of lifestyle do you want in retirement? Some people can’t wait to join an active retiree community where they can focus on their hobbies. Others crave a quiet rural life with their garden. Or maybe you imagine yourself traveling the world and need a low-maintenance home. Think about the lifestyle you want to enjoy during retirement so you have a better idea about the type of housing you need.
- What will your income be in retirement? If you’ve already retired, you have a good idea what your monthly income is. If you haven’t retired yet, you may want to talk with a financial advisor to determine the income you can reliably expect to bring in. This will help you determine how much home you can afford in retirement. Even if youre paying for a property outright, you’ll still have expenses such as maintenance, HOA fees, taxes and insurance to cover.
- What care needs are you likely to have in the future? It’s impossible to predict the future when it comes to your health. However, you’ll want to consider how your needs may change as you get older. You may want to live in a property that suits those needs now or can be easily retrofitted when needed.
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Is It Worth It For Retirees To Get A Mortgage
by Maurie Backman |Published on Oct. 9, 2021
Image source: Getty Images
Many seniors aim to be mortgage free. Are there benefits to having a home loan during your later years?
Many people have the goal of entering retirement without a mortgage hanging over their heads. In fact, some borrowers accelerate their repayment period for the express purpose of being able to start off their senior years mortgage free.
Retirees commonly live on a fixed income that consists largely of Social Security. And for this reason, many aim to avoid debt to the greatest extent possible. That way, they won’t have nagging payments to worry about as they try to stretch their limited income as much as they can.
But in some cases, getting a mortgage during retirement could make sense. Here’s what you need to know if you’re thinking of applying for a home loan in your retirement years.
