A Senior Citizen’s Guide to Home Loans and Reverse Mortgages
Can an individual ever be too old to buy a home? The answer is an emphatic no; you’re never too old to buy a home. If you have the money, or qualify to get a home loan, there is no age limit for buying a new home.
While anyone who qualifies for a home loan can get it, buying a home at the age of 60 is different from buying a home at the age of 25. If the latter makes a financial mistake, they have a better chance of recovering than would be the case for the former. This is why a proper risk assessment is crucial for seniors considering buying a new home.
To help seniors, considering buying a new home, and to help navigate the intricate space of home loans and reverse mortgages, we have put together this guide. We will look at some of the challenges seniors face when buying a home, and whether they can still get 30-year mortgages. The piece also looks at some of the common financial mistakes seniors can make, and some approaches to paying a mortgage in retirement.
Challenges Seniors Face When Buying a Home
Buying a home for your senior years can be both a practical challenge and an emotional one. Besides, the strain involved in paying mortgages late in life can be overwhelming when finances become tighter. Also, not every home will be suitable for seniors. We took some time to look at some of the common challenges you may face as a senior or retiree when buying a home.
Many people buying a new home understand the vital work done by realtors in assisting us in navigating the intricate process of buying a new home. However, not every realtor is a reliable one. To ensure a smooth process when buying your home, you will need to weed out the bad apples.
One of the most important things you should do is to ask for the realtor’s credentials. Check if they are a member of the Seniors Real Estate Specialist (SRES). The SRES provides realtors with “the knowledge and expertise to guide homebuyers and sellers over the age of 50 through major financial and lifestyle transitions” (Source).
An excellent realtor should be willing to provide you with details of clients they have assisted, particularly those with similar properties to the one you are either selling or buying. Take some time to call one or two clients and enquire about the service they received from the professional you want to engage.
Determining the Right Price
Whether you are currently renting or living in your own house, it can be challenging to determine the value of a property. Once the realtors know that your home is on the market, they will come up with all sorts of offers. It’s essential to proceed with caution.
Even though the idea is not to become a specialist on property values, take some time to furnish yourself with the necessary market knowledge. If need be, hire a trusted attorney or financial advisor and always consult with them before making any decisions. Whenever you feel as if you’re being told something that is too good to be true, think twice. Bear in mind that your instinct is probably the best measuring stick of all.
Acquaint yourself with the value of the home you are about to purchase. This can be done by checking tax assessments for other nearby homes, or talking to a trusted and impartial realtor. You can also seek a second opinion on the offer from a different realtor or real estate professionals.
Purchasing a home for your senior years requires careful consideration, bearing in mind the mobility changes associated with old age. This presents the challenge of shrinking choices because not every home you will like will be suitable.
For example, you may find it challenging to go up the stairs; therefore, buying a home with several stories may not be the best idea. If you want one, you may want to consider one with a bedroom downstairs.
Even when you get a house suitable for seniors, you may discover that you need to make modifications, such as ramps for wheelchairs and creating broader hallways. All of this can cost extra money.
Other essential factors to consider are crime rate, quick access to public transport, and proximity to medical facilities. All this means that not every home you desire will be a good one in your senior years.
No Regular Income
Income is a crucial factor in determining if someone qualifies for a home loan. Mortgage companies assess whether you qualify by determining the probability that you’ll be able to repay the loan without any challenges.
For some seniors, it may be a challenge to show regular income, particularly after retirement. You will need to prove that your retirement account savings can cover your regular living costs, such as food and utilities, and service your home loan too.
Apart from the monthly mortgage payment, other expenses come along with purchasing a home. These may include property taxes, homeowner’s insurance, maintenance, and repairs costs. All these can be draining financial responsibilities if they are not budgeted and planned for.
Can You Get a 30-Year Home Loan As A Senior?
Once you have decided to buy a new home, the next question is whether you can get a 30-year home loan as a senior. This is a question that emanates from the misconception that seniors do not qualify for home loans because their advanced age poses an acceptable risk to lenders.
According to the Federal Trade Commission, “Mortgage discrimination is against the law.” This means that a 65-year-old has the same right to a mortgage – including a 30-year mortgage – as a 25-year-old. The only elements that should determine your eligibility are your income, credit score, assets, and cash availability.
Mortgage Products Available For Seniors
There are various mortgage products that seniors and retirees can use to finance their new home purchases.
A Reverse Mortgage
Let’s start with a product that is specially designed for seniors: the reverse mortgage. This is a type of loan specifically for homeowners aged 62 and above. Unlike other mortgages, this loan does not have to be paid back straight away. Payment would only be required if the homeowner dies or decided to sell their home.
The reverse mortgage allows the homeowner to access their home equity, which they have built over the years. The interest accumulated by the loan is added to the loan balance every month. Even though this means that the interest can end up being more than the home’s value over time, the borrower’s estate is usually only required to pay an amount equivalent to the value of the home.
One of the most common reverse mortgages is the Federal Housing Administration-backed Home Equity Conversion Mortgage, which permits you to use the money for whatever you want. To qualify for this type of mortgage, you will need to be using the house as your primary residence and pay the insurance, taxes, and upkeep of the house.
The Standard Mortgage
The standard mortgage is a typical 30-year home purchase mortgage program in which the buyer’s home acts as the lending institution’s collateral. In this case, the buyer makes the down payment towards the purchase price or may qualify for downpayment assistance programs.
Once the initial costs are paid, the remaining amount is catered for by the buyer’s preferred financial institution. The total amount provided for by the financial institution is to be repaid by the buyer within a scheduled period at either fixed or variable interest rates.
The Second Mortgage
The second mortgage is a subordinate mortgage made in addition to the homeowner’s primary mortgage. This loan is offered based on the assumption that your home is an asset that gains value over time. This type of loan allows you to use your home’s value to accomplish other goals without the need to sell it.
The Refinanced Mortgage
Refinancing a mortgage refers to taking out a new loan to pay off the original mortgage loan. Why would you need to take a loan to pay off your original home loan? There are several reasons:
You could get lower interest rates and monthly repayments when your credit improves, or market rates drop compared to the time when you applied for the first loan. You could also get a refinance mortgage to cash out your portion of the equity in your home and use it for other projects. For seniors, this could be a source of needed cash for other expenses.
Mortgage refinancing can help shorten your loan term from maybe 30 years to 20 years. Shortening the loan term can save homeowners money on interest over the life of the loan.
Common Financial Mistakes Made by Seniors When Buying a Home
A financial mistake in your later years of life can be more devastating than one made earlier. Seniors can make several common mistakes with regard to buying or selling a home.
One of the biggest financial mistakes is to remain in a home that you can no longer afford because of sentimental value. You may need to think carefully about whether you need to pay the costs of a house that you no longer need purely out of sentimental value.
Some people may also opt to use their funds from a 401k, or retirement funds, to pay off their mortgage because they are worried that they may not have enough money to service their mortgage later. Doing this may attract early withdrawal penalties. You may also discover that investing any lump sum could give you better returns than the interest you pay on your mortgage, making it judicious to invest the money and pay your mortgage monthly.
It would also be a mistake to buy or sell a home without weighing the consequences that may arise from doing so. A related financial mistake is making a hasty decision on purchasing a home without figuring out whether you can fully afford it. Usually, this is caused by just looking at the price and not considering other elements that could add to the cost of maintaining the house. You will need to think about other costs, such as insurance, taxes, and maintenance costs.
Buying a home without adequate time to gain knowledge about current prices may lead to accepting a lower amount than your home is worth, or paying more than you should for a new home. Also, waiting too long to accept a fair offer under the mistaken belief that a higher one may be around the corner may be a costly mistake.
Approaches to Paying For a Mortgage in Retirement
Paying your mortgage in retirement will need careful planning. For most people, finances may become tight at this stage of life.
Consider drawing from the source with the lowest interest rates first if you intend to pay off your mortgage. In case you don’t have diverse sources of income, paying off your mortgages may hurt your savings; therefore, it is a good idea to keep on making scheduled payments. In a situation where the return rate of your retirement savings is low, when compared to the interest rates on your mortgage, paying off the mortgage can be a better option.
If you decide that selling your home is not an option, you can use your home to increase your income. For instance, you can consider bringing in a renter to use parts of the home you are not using to help you pay the mortgage and for the upkeep of the home.
If you can live with it, you can also list your house in accommodation services like Airbnb, which could provide extra cash from bedrooms you are not using. For seniors living alone, this could also provide a source of company.
Suppose you wish to reside in your property into retirement, but can’t afford the costs of running it. In that case, it’s worthwhile to transfer the ownership, and financial responsibilities to your children or other relatives if they are willing. Doing this will relieve you of financial obligations, such as mortgage interest payments. Otherwise, you can take a reverse mortgage on the house.
Looking to Apply For a Reverse Mortgage?
If you’re a senior citizen or know a senior citizen interested in applying for a reverse mortgage, contact us today with any questions you might have.