How to Get a Senior Housing Loan
Many Americans envision young families when they think about people looking to buy a home, but owning a home is still a common goal for retirees and older adults. Buying a home is challenging when mortgage rates are high and the available inventory is low. Younger buyers might be able to wait for market changes, but some seniors might not have that choice if they need financial stability in their later years. Whether they’re looking to refinance a family home, buy a vacation property, or finally own a house, many seniors seek home loans that make their goals and aspirations come true. Fortunately, this is very possible even later in life.
Senior Housing Loans Exist
Senior housing loans are very much possible for older Americans trying to secure financing for a residence. The Equal Credit Opportunity Act is federal legislation that prohibits several kinds of discrimination against those trying to get a home loan, and age is one of those forms of illegal discrimination. There is no upper age limit to get a mortgage or refinance an existing one. You will still be accountable for meeting the requirements of any mortgage.
Mortgage requirements for seniors include credit scores and debt-to-income ratios. If you’re retired, your documentation might differ from that of someone who is still working. For instance, you might need to provide recent bank statements, 1099 forms, and award letters. Depending on your specific mortgage loan, a minimum down payment is a potential requirement. You should also plan on covering mortgage insurance or something similar, and most mortgages will have an upper limit you can borrow in terms of overall property value.
Senior Housing Loan Options
Seniors tend to have distinct financial circumstances compared to younger generations. Even seniors still working have different career outlooks; anyone providing senior housing loans considers that. Some mortgage options for seniors reflect this in their requirements, given the unique nature of many retirement income sources. The following are top housing loan options for seniors who need help financing their homes.
Conventional Loans
Many seniors opt for conventional loans, and their popularity is driven by the fact that so many feature low down payments. Conventional loans are in a broad category that includes nearly everything from a private mortgage lender but aren’t federally ensured. Quite a few lenders treat Social Security payments as reliable, qualifying income. Seniors with optimal credit scores and a low debt-to-income ratio tend to get favorable terms. Conventional loans might be conforming, so you can get them through Freddie Mac or Fannie Mae; nonconforming loans can also be conventional but won’t be available through those two sources. In most conventional loans, 20% or more down payments prevent you from paying for private mortgage insurance.
FHA Loans
FHA loans have the backing of the Federal Housing Administration. Seniors can get FHA loans with eligibility criteria that are less stringent than the requirements usually listed for conventional loans. If your credit score exceeds 580, your down payment requirement might only be approximately 3.5%. However, you will be required to pay premiums for mortgage insurance in most cases.
USDA Loans
USDA loans are often directed towards people looking to buy homes in rural areas. Many seniors, especially those who retire, relocate to rural areas when they no longer need to be close to employment opportunities. Some also enjoy starting farms in their golden years. Additionally, USDA loans typically don’t require any down payment, and the credit requirements can be flexible. The income limitations are often more stringent.
VA Loans
If you’re retired from the military, then you might qualify for VA loans. These are also often available to spouses of veterans. Many VA loans don’t require down payments or private mortgage insurance, so they’re a potential benefit for those who have served in the armed forces.
Reverse Mortgage Loans
Reverse mortgage loans exist specifically for seniors who want to access their home equity. You need to be 62 years of age or older to qualify. Rather than get a lump sum to buy a home, your lender would give you monthly payments for your current home over a set period. After that period, the lender sells the home or lets one of your family members refinance it. Many seniors use reverse mortgages to lower mortgage payments, boost retirement resources, or cover in-home care. You can get a reverse mortgage only for your primary residence; vacation and investment properties won’t qualify.
Home Equity Line of Credit
This is frequently abbreviated as HELOC. It’s a revolving credit line for which the collateral is any equity you have in your home. Interest rates with these lines are usually variable, and you need sufficient home equity, a credit score that’s high enough, and a relatively minimal ratio of debt to income. Many homeowners use HELOCs to finance home improvement projects, and you might need to make alterations to your home so it better suits you in your senior years. You can also use the money to cover living expenses.
Home Equity Loans
These are similar to HELOCs, but they’re not identical. Home equity loans are sometimes called second mortgages, and they’re loans that let you borrow money using home equity as collateral. You need a debt-to-income ratio that’s low enough to qualify, and your credit score has to be good. Use a home equity loan to finance a significant expense, but also be aware of the risk. Failing to pay the loan back means the lender eventually has the option to seize your home. Home equity loans have monthly payments just as primary mortgages do.
Rate-and-Term Refinance
There are several kinds of refinance options, but the rate-and-term refinance variant is the most traditional one. Seniors can use it to modify an existing mortgage so they get better loan terms than they previously had. Using this option, borrowers can convert their previous loan into a fresh agreement that gives them better numbers. For instance, you might capitalize on better interest rates since you started your previous loan. Doing so might lower your interest rate so that you get smaller payments or even a shorter term.
Cash-Out Refinance
If you do a cash-out refinance, you’ll replace your previous mortgage with a newer, bigger loan, but you’ll get the difference between the two in cash. This is a means of converting home equity you’ve built on paper into tangible cash you can spend or save. However, you’ll need a lot of home equity, and many lenders put cash-out refi borrowers under high scrutiny. This can also make it harder to pay off your mortgage as quickly as you like, and mortgage payments might continue further into retirement.
Cash-In Refinance
As the name implies, a cash-in refinance is the opposite of cash-out refinance options. In this case, you can add money to your home to increase your equity. The practical effect is making an extra down payment on your mortgage. Doing so opens the door to lowering your principal balance, getting a better interest rate, or improving your terms. If you want to ensure your home is paid off during retirement or before, a cash-in refinance might help you expedite your timeline.
Bank Statement Loans
Many seniors need help documenting their income via tax returns but get sizable deposits regularly. In these situations, bank statement loans can utilize deposit history from a senior’s bank accounts to establish income qualifications. These have grown in popularity with the rise of the gig economy because self-employed professionals, freelancers, and contractors might not have regular income for conventional mortgages.
Asset Depletion Loans
Seniors who have substantial assets in their financial portfolio might be able to look into asset depletion loans. Not all lenders provide these, but the ones that do permit certain assets to be converted into income that helps seniors qualify for such a loan.
Why Do Seniors Look for Housing Loans?
Everyone who is a retiree or senior will have unique circumstances, but there are notable trends among older individuals regarding why they need housing loans. In many cases, older people or couples might be downsizing. Parents might be empty nesters whose children are now living independently. Still, even those without kids might be looking to reduce how many possessions they own and even how much square footage they’re responsible for so they can simplify their lives with less work overall. Anyone going through a divorce or who has outlived their spouse or partner might suddenly need less living space than they once did.
Another common reason for needing a senior housing loan is relocation. Older individuals move to new areas of the states they live in or to entirely new states. Many flock to areas with warmer weather or just climate that they find more comfortable, whereas others might choose to go to places with lower living costs to stretch their retirement resources out longer. Being closer to family, such as kids and grandkids, can be a serious motivator to pack up and plant roots somewhere else, and others want to try out a different part of the world where they can enjoy their free time without being tied down to a job.
Debt consolidation is a common tactic among older Americans looking to simplify their financial picture. If you own your home already, a cash-out refinance or a similar housing loan might help you pay off multiple debts or roll them into a single balance so you only have one loan and corresponding payment.
Another money-saving tactic you might be interested in as a senior is trying to reduce your monthly mortgage payments. Refinancing an older mortgage with better interest can lower the monthly amount you need to pay, but you can also do this to move into more affordable housing.
Decades of Housing Needs
The defining line separating senior citizens from younger adults isn’t a clear one. Medicare defines seniors as those 65 and up, Social Security benefits can start at 62, and the Social Security Administration lists 67 as the retirement age. Further complicating is how some fast food chains provide senior discounts for people aged 55, and AARP membership can start at age 50. While many people envision seniors living in nursing homes or assisted care facilities, but many elders prefer staying home as long as possible. A home is often a family’s most significant financial asset, so having one during the later stages of life can lend itself nicely to prosperity and stability over decades of restricted income.
Find the Loan You Need
American Business Credit offers business and personal loans to companies and individuals needing financial resources to pursue their agendas. We have years of cumulative knowledge and experience we can use to help you save time and find the money you need to move ahead in life. While you can always find funding independently, working with us often opens doors to more possibilities than you would otherwise discover. That’s thanks to our broad network of willing lenders and knowing their criteria so we can find you a match. Start your application now, or call us at (800) 549-2744.
