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The mortgage interest rate is hovers above 7% average for conventional mortgage loans with a term of 30 years at the moment. That’s significantly higher than mortgage rates during the early years of the pandemic – and almost three times higher than rates when they hit a new record low of 2.65% in January 2021. And while people are still buying homes with increased interest rates, home purchases are not closing at nearly the same pace as in recent years.
But buy a house is already a major investment, whether interest rates are at record lows or hovering far above them, as they are now. And while making that move may make sense for some, that doesn’t mean buying a home with a mortgage is the right move for every senior. Here’s what the experts think about whether seniors should buy a house with a mortgage loan during retirement.
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Should seniors get a mortgage during their retirement? This is what experts think
Legal, Seniors are free to buy a house with a mortgage loan if they want — and lenders are not allowed to discriminate against them, as the Equal Credit Opportunity Act prohibits lenders from discriminating against applicants based on race, sex, religion, age, marital status and other factors. This allows seniors and other groups to do so apply for a mortgage without having to worry about whether they will be rejected based on their age.
“Financially stable retirees who can count on a consistent source of income may choose to take out a home loan,” says Jones. “Many retirees are selling a home and can use the income to buy cash or take out a smaller home loan, both of which would reduce the ongoing cost of living.”
And age is not a determining factor in whether or not you can do it pay off your mortgagesays Michele Albohn, certified mortgage broker at Compass Mortgage.
“There’s no reason why a senior can’t apply for a mortgage,” says Albohn. ‘You don’t have to prove that you will live for thirty years to pay off the mortgage. [But] Whether or not a senior should take out a mortgage is an individual decision.”
What does matter, however, is that you have a demonstrable source of income and can demonstrate how you can repay your home loan. These are important factors in terms of qualify for a mortgage. But income is more than just your paycheck.
“Income is an important consideration when getting approved for a loan, but this income doesn’t necessarily have to come through employment,” says Jones. “Retirement accounts, retirement payments [and] other sources of income would all be considered in a loan application.”
During the period you can use a number of sources of income mortgage application process, whether it concerns a side job, social security, disability, investment income, alimony or something completely different. This means you don’t have to have a full-time job to buy a house. But in general you will have to meet other requirements.
“Lenders view retired borrowers with the same considerations as working borrowers,” says Hannah Jones, a Senior Economic Research Analyst at Realtor.com. “Credit score, outstanding debts, assets and income are all considered for loan approval.”
Lenders also look at your debt to income ratioor DTI ratio, to determine whether you are suitable for a mortgage. Your DTI is determined by adding up all your monthly debts and then dividing them by your gross monthly income.
Although lenders have different DTI requirements, the lower your DTI is, the less risk you generally pose to lenders. So it can help to keep your DIT below 50% (but 43% or less is preferred) and have a decent chunk of savings or an exceptional credit score to show your financial responsibility.
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Why a home loan may not be the best move for every senior
Buying a house when you retire This may be a good idea in some situations, but that doesn’t mean it’s the right move for everyone.
“Seniors should avoid letting home loans significantly impact their savings if their retirement income cannot comfortably cover the payments,” says Mindy Price, a real estate agent with eXp Realty. “It is critical to proceed cautiously and avoid excessive debt, especially given the possibility of unforeseen health or financial changes.”
But even if you have a steady income during retirement, it’s important to make sure you can afford a home loan and the associated periodic payments.
“Retirees should not stretch themselves financially to take out a home loan,” says Jones. “Many retirees no longer have a mortgage on their existing home, so they need to consider the impact on their lifestyle of a monthly rental payment.”
it comes down to
Buying a home with a mortgage loan is possible as a retired senior, but what makes sense for one borrower may not make sense for the next. So be sure to weigh all your possible options to determine which route, if any, makes the most sense for you.
And if you choose this route, it’s important to calculate all of your potential retirement income, Albohn says, to make sure you can repay the home loan. You may also want to talk to a mortgage broker or mortgage broker, who can help you determine whether taking out a home loan during retirement is a good choice.
