Downsizing With A Mortgage
Other seniors might want to downsize from a large home to a smaller one that is easier to care for. Depending on when these seniors bought their existing home, they might not be able to sell it for enough to cover the mortgage on a smaller residence. In such cases, they might have no choice but to take on a new mortgage loan, even if they are in their 60s or 70s.
Ron Weiner, a certified financial planner and president at RDM Financial Group in Westport, Conn., said that some seniors let emotions cloud their judgment. They like their homes too much, and they don’t want to sell them. They hang onto them even when a better financial choice is to sell a large home with high property taxes.
“They might have a house with five bedrooms and they’re empty nesters,” Weiner said. “From a pragmatic point of view it makes sense to downsize and move into a smaller home that’s easier to care for. This has to be a hard-nosed business decision. You have to discuss all the aspects of this decision, even those that are emotional and difficult.”
The Advantages Of Being A First
There are 2 major advantages to being a first time home buyer: lower down payments and tax deductions on your mortgage payments.
Many first-time home buyers find that down payments are the biggest obstacle to purchasing a home. For a house that costs $250,000, most lenders expect borrowers to put at least 20% payment down on the homes purchase price. Most people simply dont have $50,000 or more lying around, though.
First-time home buyers can qualify for special first-time home buyer programs that offer down payments as low as 3%. For that same $250,000 home, youd only have to pay $7,500 down.
You can also qualify for first-time home buyer grants which are government-backed mortgages from the Federal Housing Administration if you have poor credit. These mortgages guarantee a down payment of 3.5% for first time home buyers with a credit score of at least 620 and a down payment of 10% for borrowers with a credit score of at least 580.
To qualify for an FHA loan, you must purchase private mortgage insurance. This protects your lender in the event that you default on a portion of your mortgage.
The other major benefit that first-time buyers receive is that certain mortgage expenses are tax deductible. For example, you can deduct the interest payments on your mortgage as long as your mortgage is secured by your home and is worth less than $1 million. You can also deduct up to $10,000 in state and local property taxes from your federal tax bill.
Can You Get A Mortgage As A Senior
When it comes to getting a home loan in retirement, mortgage lenders look at a lot of numbers to decide whether a borrower is qualified but age isnt one of them. The Equal Credit Opportunity Act makes it unlawful to discriminate against a credit applicant because of age.
I once did a 30-year mortgage for a 97-year-old woman, recalls Michael Becker, branch manager and loan originator at Sierra Pacific Mortgage in Lutherville, Maryland. She was lucid, understood what she was doing and just wanted to help out a family member 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.
When seniors apply for a mortgage, lenders look at the same criteria as they do for any other borrower, including:
- Debt-to-income ratio
- Income and other assets
The minimum credit score to get a conventional loan backed by Fannie Mae or Freddie Mac is 620, although that score wont qualify you for the best rates. Check your credit score before applying for a loan you can do so for free each week until the end of 2023 by visiting annualcreditreport.com.
Youll also want to calculate your DTI using this formula:
DTI = monthly debt payments / monthly gross income
A DTI ratio as high as 50 percent might be allowed, but lenders prefer to see you spending less than 45 percent of your monthly income on debt payments, including your mortgage.
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Is There A Mortgage Age Limit When Buying A Home
Editorial Note: The content of this article is based on the authors opinions and recommendations alone. It may not have been reviewed, commissioned or otherwise endorsed by any of our network partners.
If youre an older homebuyer whos concerned about exceeding a mortgage age limit, rest assured that your birthdate wont be an issue for you. Focus your energy instead on picking the right mortgage product and meeting your lenders requirements.
How Much Deposit Do I Need For A First
Some programs, such as FHA loans, let you purchase a home with as little as 3.5% down. If your state has first-time home buyer programs, you may even be able to buy a home with zero down. You still need cash on hand to pay for expenses such as an appraisal and closing costs. In addition, the more money you put down on a home, the less youll pay in PMI and interest expense.
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How Are Mortgage Rates Set
In simple terms, mortgage rates are set by the secondary mortgage market. This marketplace is where investors buy off mortgages from the lenders in order to receive a return on investment . The higher the interest rate, the more appealing it is to investors. However, too high, and potential borrowers wont want to borrow from that lender. So, it is a balance between the two that sets the actual rates. Other factors include inflation, Federal Reserves prices, and US treasury rates.
The rate that you are given is dependent on several factors, including the lender, the value of the house, and your current financial situation. The most important factor, though, is your credit score. Your credit score doesnt just determine whether or not youll qualify for a loan at all, but it also sets the bar for what type of interest rates youll be offered. The better your credit score, the better the interest rates you are going to see on offer. What qualifies as a good rate for someone with poor credit will not be considered a good rate for someone who has excellent credit.
How Old Is Too Old When It Comes To A Mortgage
Older home buyers entering the market for the first time appear to be growing in numbers in Australia and New Zealand, as a combination of rising rents and low interest rates makes buying property a more attractive proposition. But, how big a factor is age when it comes to lenders determining your lending ability? Read on to find out.
Buying a home later in life
Young first home buyers are not the only ones struggling to get a foot onto the property ladder. More and more older first home buyers in their 30s to early 50s are joining the race too. And, while theres no official maximum age limit when it comes to mortgage lending, the fact is, securing a home loan approval is that much more challenging the older you get.
Although lenders cannot discriminate based on your age, they are still required to ensure you meet the usual lending criteria no matter your age. Having a steady income to meet your repayments on time is obviously vital, which could be a concern for lenders if youre considering retiring in a few years time.
Lenders also have a responsibility to ensure that anyone they lend to can afford to repay their loan without undue financial hardship, and when you consider that a typical loan term is 30 years, securing a mortgage later in life could mean you enter retirement with mortgage debt.
Getting mortgage approval
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Cons Of Buying A House Young
Along with the pros, there are some cons of buying a house young. The truth is that its not right for everyone. Review these cons before making a decision:
- Feeling locked in during a time of change. A lot of change can happen when youre a young adult. While some may see owning a home as stability, others may feel its a trap, especially if theyre interested in moving or exploring other opportunities.
- Too much budget strain. Owning a house is expensive. If youre strapped for cash and cant afford monthly mortgage payments, you could consider roommates, tenancy in common or joint tenancy. However, these come with their own complications.
- Extra responsibility. Owning a house comes with a lot of responsibility in terms of maintenance compared to renting. While renters rarely have to worry about lawn care or plumbing issues, these can fall on your shoulders if youre a homeowner.
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“You might qualify for a mortgage with a $3,200 monthly payment,” Winkfield says. “But in reality, with all the other things that come up with owning a home the electric bill, maintenance, surprise repairs can you really afford it? You have to take a long look at your finances, no matter how old or young you are.”
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Types Of Home Loans For Seniors
Whether youre a member of the silent generation or a baby boomer, there isnt a catchall mortgage type that fits your financial situation. Your borrowing decision ultimately depends on whats best for you.
Make sure that you understand whats out there and what fits your personal needs, not the needs of the person speaking to you, Leyrer said.
Consider one of the following mortgage products while preparing for your home purchase.
Whats The Mortgage Age Limit
There isnt a legal, maximum mortgage age limit to meet when taking out a mortgage. In fact, age is a protected class under federal anti-discrimination laws. What does matter is your ability to qualify for and repay the loan youre attempting to borrow.
If youve got continuation of income it doesnt matter, said Pava Leyrer, chief operating officer at Northern Mortgage Services in Grandville, Mich. You can be 100 years old and still get a 30-year mortgage. Everybody laughs at it, but, technically, thats true.
No matter your age, its necessary for you to meet minimum requirements for both your lender and chosen mortgage program to get approved and move forward with your home purchase.
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Before And During Your Mortgage Review
A lot of factors go into a creditors decision to approve your mortgage application, and not everyone who applies for a mortgage will qualify to get one. The best time to improve your chances of getting approved is before you even apply.
Check your credit report. This is an important way to prepare before you apply. Creditors will look at your income, expenses, debts, and to make decisions about the strength of your mortgage loan application. Some of that information is in your credit report, and you want to make sure whats there is correct. If your credit report has inaccurate information, you can dispute those errors with the credit bureau.
Clear up past due debts. Use the accurate information on your credit report to contact the companies you owe, verify the past due amount, and pay off or pay down the debt.
Estimate the monthly payment you can afford. Knowing this information upfront will help you apply for a loan that fits your budget.
Determine your down payment. The amount of your down payment can determine the type of loans you qualify for.
Theres a lot more information about Shopping for a Mortgage.
When your mortgage application is ready for review, the creditor has to look at whether you have reliable income and are likely to be able to pay back the loan.
The law says that creditors must consider these as reliable sources of income:
A creditor may ask for proof that you get this income consistently.
Why Are Houses Reduced For Over 60s
Secure the perfect home and save money The Home for Life Plan is a Lifetime Lease option for people aged 60 years old or over. … This saving means that you could afford a better property, move to a preferred location, raise money to fund your retirement, pay off debts, or even create an early inheritance for loved ones.
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Why Are Older Borrowers Seen As High Risk
There are two reasons why you might be seen as high risk if youre an older borrower.
Your monthly income
Lenders want to make sure you can make your loan repayments before accepting your mortgage application. But if you are no longer in receipt of a salary and not on a sufficient pension, you may find it more difficult to keep up with your mortgage repayments. Monthly repayments that will still need to be paid in retirement will also be taken into consideration. An example would be a personal loan.
Your health and life expectancy
Its no secret that we become less healthy as we age and its because of this that mortgage providers sometimes reject a mortgage application from borrowers who are unlikely to survive a 25-year mortgage term. If youre between 50-60, this might not be an issue for you, but it will become harder for you to get a mortgage if youre over 70.
The Older You Are The Stricter The Lending Criteria
Typically, as you get older, youre likely to be offered a shorter repayment period on a mortgage than a younger borrower would . You might also find that youre offered fewer deals. For example, it might be harder to find , which tend to have lower monthly repayments.
If youre an older borrower and you still have a few years left on your current mortgage, you might want to think about instead of finding a new deal. However, while you might be offered better terms by your current lender, youll still need to meet their eligibility requirements.
Expert view from at London & Country Mortgages
As many of us are living and working for longer, theres likely to be an increasing need for more flexibility around lending to people in later life. Although the ideal situation is to repay your mortgage by the time you reach retirement, some older homeowners will have a good income that can cover a monthly mortgage payment.
Thankfully, lenders are realising that more flexibility around the maximum age at the end of the mortgage term can work for some borrowers. Retirement interest-only mortgages offer another alternative for the right borrower.
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What Is The Difference Between Grants For First Time Home Buyers And First Time Home Buyer Programs
A first home buyer grant is a predefined amount of money that is given by the government or specific organization to a first-time home buyer for the specific purpose of assistance in buying a first home. Grants for first-time home buyers are usually available based on region.
A first home buyer program is an incentive offered by the mortgage lender which outlines special rates, terms, or benefits that are offered exclusively to first-time home buyers. These programs are highly unique to each lender.
Why Are Lenders Reluctant To Lend To Older Borrowers
Lenders are not allowed to discriminate based on age, but they still need to make sure you satisfy the usual lending criteria. This is based on your capacity to make timely repayments over the life of your loan.
The most important factor in your ability to pay off a home loan is the income you earn, so if youve already retired or planning on retiring in the next few years, you’ll need to convince the lender that you’ll be able to service the loan even with no income coming in from a job.
The lender also needs to be certain that you will be able to pay the loan off. When you consider that the typical term of a home loan is 30 years, a 65-year-old applicant could potentially be within sight of their 100th birthday before theyve paid off their 30-year loan. This could be an unacceptable risk to the lender.
That doesn’t mean you won’t be able to get a home loan if youre an older Australian. If you have your finances in order and can demonstrate your ability to repay the loan, your application can be approved.
That said, once you reach 65 years of age or older, obtaining mortgage approval grows increasingly more difficult.
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Alternative Mortgage Products For Post
Regardless of your age, it is very likely that there is a mortgage product available that suits your circumstances and will provide the borrowing you require.
Standard residential mortgages are just one of the thousands of potential products, although if you meet all the criteria, you can still choose between fixed-rate, variable or tracker mortgage rates.
Below we have listed some of the possible alternatives if a regular mortgage is not right for you:
Home Loans For Mature Borrowers: What To Look For
Like anyone looking at home loans, if you are older you need to make sure the product suits your circumstances, specifically the following key features:
- Interest rate: the higher the interest rate the more you end up paying over the life of the loan, so it makes sense to look for the lowest rate possible.
- Fees: all the fees and charges attached to a loan – like the application fee, settlement fee and redraw fee – all add up, and impact the overall cost of your mortgage.
- Flexibility: if you are able to make additional repayments you will be able to pay off your loan quicker and minimise the interest you pay, which is important if you are close to retirement.
- Offset or redraw: home loans with features like offset or redraw can both help to reduce the interest payments, so you can pay off the debt faster.
Letâs now look at how you can maximise your chances of getting approved for a loan, as a mature borrower.
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