How Aging Can Make It Harder To Secure A Mortgage And What You Can Do About It
Buying a new home is often associated with younger homebuyers, as it often coincides with life events such as a career change or a growing family. However, there are a number of reasons why older homebuyers are in the market for a new property, such as downsizing to a house that has fewer rooms or stairs, moving to be closer to family, or relocating to a more moderate climate. As common as these life events are, research shows that older homebuyers often have a more difficult time obtaining a mortgage, according to Marketplace.
In 2021, 13% of the mortgage applications approved were for people aged 65 years old or older, adding up to more than 1.9 million mortgages. The Equal Credit Opportunity Act prohibits a lender from discriminating against an applicant solely on the basis of age. However, each mortgage lender considers a predetermined set of factors that affect each applicant's ability to repay a loan, and a person's age and situation in life will have an influence. So, why is it harder for older individuals to secure a mortgage, and how can this challenge be addressed?
Income and mortality
Ron Haynie, senior vice president at the Independent Community Bankers of America, states "there's nothing that's different for a borrower that's 65 or over versus a borrower in their 30s – it's all about their ability to repay," (per U.S. News and World Report). While the lender will take into account the applicant's credit score and assets owned, the source of income is the main priority.
A person over 65 will need to demonstrate income from sources such as Social Security or retirement accounts. Even when these sources appear fixed and reliable, lenders must ask the question of whether they will last long enough to repay the loan. Other investments can also be taken into account, such as stocks and bonds, however, only 70% of their value can be recognized for the loan application, due to the unpredictability of the markets.
Another factor that can impact a mortgage application is mortality. If a person dies and leaves the property to others, it's possible for the house to be complicated by probate issues for years to come. Conversely, a mortgage that is paid off quickly after a person passes away can also cause a problem for the lender and represents a lost opportunity for the mortgage company to collect interest on the loan.
Helpful tips to consider
Despite the challenges faced by older homebuyers, several things can be done to strengthen the eligibility of an application. It's important to focus on factors that affect your income and credit score. For example, try to avoid taking funds from any account that would result in an early-withdrawal penalty. If you are currently repaying a mortgage, you could consider refinancing as an alternative to purchasing a new loan, which may result in lower monthly payments or a shortened term of the loan.
Another helpful tip is to research lending institutions that are accustomed to working with seniors. Retired homebuyers often have other sources of income that an experienced lender will be able to determine and document on the application. For this reason, it's also a good idea to speak directly to a person when completing the application rather than doing it online, so that questions can be accurately addressed.