Mortgages and homebuying for seniors at age 60 and above

There’s no time like retirement to enjoy a second act. Buying a new home is a major adventure and there’s a lot of reasons why seniors may be ready to make a big change and buy a house. They could be downsizing to a new retirement home or finally buying the vacation home they always wanted to enjoy their golden years with their families.

While age alone won't hinder senior citizens ability to buy a house, there are a few unique considerations they need to take. There are also a host of mortgage products and programs geared specifically toward individuals, which can help if

How old is too old to buy a house?

The good news is, you’re never too old to buy a house. There is no age that rules you out of buying a home, thanks to the Equal Credit Opportunity Act, which makes it illegal to discriminate against a mortgage applicant based on how old they are. That means that senior citizens don’t have to worry about their age when applying for a home loan. They may, however, need to worry about their income. 

Many retirees live on a limited and fixed income, which will play a crucial role in whether or not they will qualify for a mortgage loan. Lenders want to see that borrowers have sufficient income to afford their home, and they do this by analyzing an applicant’s debt-to-income ratio (DTI) which compares how much of someone’s income they have available after accounting for the amount of debt they hold. Generally, you want to keep your debt ratio below 45%, but the lower you can get it, the better. 

It’s also important that senior homebuyers have a good credit score when buying a house. Like any other applicant, you should aim for a score of 620 or higher to make qualifying for a conventional mortgage loan easier. 

Can retirees get a 30-year mortgage?

The good news is that yes, retirees and senior citizens can still get a mortgage loan. However, there are some unique considerations that must be taken into account.

Retirees may have limited work history, which can be challenge when it comes to qualifying for a loan, as lenders typically prefer borrowers who have a stable employment history. But this requirement can be waived during mortgage underwriting if the borrower can demonstrate their ability to repay the loan. If a retiree is receiving a pension or Social Security benefits, this income can be used to help qualify for a mortgage. Some retirees may also have rental income or other sources of passive income that can be used to qualify for a mortgage.

Another factor to consider is the loan term. Some retirees may prefer a shorter loan term, which might make it easier to manage monthly payments and pay off the loan sooner. However,  "I've done many 30-year loans for 70- and 80-year-old homebuyers," says Cameron Phelps, Sales Manager at Orchard Mortgage.

Finally, it is important to note that retirees may also face higher interest rates. This is because they may be considered a higher risk due to their age and limited income. However, this can be offset by having a larger down payment or seeking a government-backed loan, such as a reverse mortgage.

Senior mortgage options

Unless they’re paying in cash, retirees and seniors can opt to take a mortgage out to finance their home purchase. The process the same as if they were any other age — they fill out an application, get pre-approved, show financial statements, and go through underwriting. In addition to take out a new mortgage to buy the home, they can also leverage the equity in a home they already own.

Reasons seniors may need to apply for a mortgage

• They want to refinance. They may do this to take advantage of lower interest rates or may choose to extend their loan terms. Refinancing can offer you lower interest rates and more cost-effective monthly payments, which can be particularly beneficial if you’re relying on a fixed income. 
• They need extra cash. A cash-out refinance allows you to take out a brand new mortgage for more than your home is worth and pocket the cash. It makes it possible to borrow against your home equity to pay for expenses like home renovations, consolidate debt, or even buy another home. 
• They want to consolidate their debt. Another reason some seniors choose to apply for mortgage loans is so they can consolidate debt with a cash-out refinance. They can potentially obtain a loan at a reduced interest rate and pay off high-interest debt. 

Here are four popular types of mortgage for seniors.

Conventional mortgage loans

These loans are backed by private lenders, not the government, and you need to make a 20% down payment to qualify without having to pay for private mortgage insurance (PMI). You can use a mortgage calculator to see how much house you can afford. 

Second mortgage loans

Seniors who already own a home can borrow against the equity to buy a new house, through either a home equity loan or a HELOC. Equity loans typically have a fixed rate, which makes budgeting as well as payments easier. The term of the loan can be anywhere from five to 30 years, so you can customize it to meet your needs. HELOCs, or home equity line of credits on the other hand provides access to a set sum of funds which can be used as needed. This type of financing is more flexible but may include varying payments depending on the ever-changing interest rate and chosen line of credit utilized.

Reverse mortgage

This mortgage product allows individuals who are 62 years or older to tap into the equity in their homes to receive a lump sum of cash, a line of credit, or monthly payments. Unlike traditional mortgages, there are no monthly payments required on a reverse mortgage. Instead, the loan becomes due when the borrower sells the property, moves out, or passes away.

Reverse mortgages aren't typically used towards buying anew home. One of the main advantages of a reverse mortgage is that it provides seniors with access to their home equity without having to sell their home. This can be especially beneficial for individuals who want to stay in their homes but are facing financial difficulties. The loan proceeds can be used for a variety of expenses, including paying off debt, covering healthcare costs, or making home improvements.

However, it is important to note that reverse mortgages are not without their drawbacks. The fees associated with a reverse mortgage can be high, and the interest rates may be higher than other types of loans.

Related: How to qualify for a mortgage before selling your old home

Should you buy a home at 60-years-old?

There are both of pros and cons of buying a home after 60 that older home buyers should keep in mind:

Pros of buying a home as a senior citizen

• You have financial security and independence. The security and stability of owning a home could provide peace of mind for senior citizens who may want to stay put for longer periods of time without worrying about moving. They also won’t have to worry about rent payments going up and may find budgeting easier with a mortgage loan thanks to fixed mortgage payments. Mortgages for seniors on social security can be more affordable than renting in the long run. 
• You might be able to afford a bigger house. Buying a home at an older age may allow seniors to purchase a nice property with amenities they wouldn’t be able to get if they purchased sooner in life, due to the appreciation in value over time and having saved more money while working. 
• You can reap tax benefits. Not only will you benefit from building equity in your home, but you can also take advantage of tax deductions, such as listing your mortgage interest as well as real estate taxes when filing your annual return.

Drawbacks of buying a home as a senior citizen

• Dealing with maintenance can be more difficult. When you own instead of rent, you’re responsible for all home maintenance and repairs which can be time consuming and expensive. Roofing, plumbing, and lawn care are just some of the issues that might affect your home, whether new or old. 
• You have to deal with additional costs. When you rent, you can skip out on increased insurance premiums, mortgage payments, property tax obligations, or even condominium or homeowners' association dues. 
• You’ll have less time to recoup investment. Buying a home later in life limits the amount of time you have to earn back the money, which may harm your financial plans if you intend to leave money behind for children or grandchildren. 

Senior citizens may consider buying a home as an important step to ensure financial security in retirement. While there are plenty of reasons why people in their 60s should consider buying a home or refinancing an existing home, you should still be sure to understand your own financial circumstances and evaluate your ability to commit for the long term, prior to taking the leap into becoming responsible for a new home and all that it entails.