If you are a retiree looking to buy your first house, refinance your family’s home or even purchase your dream vacation villa, it’s never too late to secure a mortgage. Home loans for older adults may simply require extra planning and paperwork.
The real question, of course, is whether you should get a mortgage. The answer to that will depend on your finances and future plans.
We’ve broken down the process of obtaining a mortgage after retirement, including how to handle income verification and how to select the right loan for your budget. We’ll also dive into the advantages and disadvantages of taking out a mortgage later in life, so you can make an informed decision.
Key Takeaways:
- Under the Equal Credit Opportunity Act, older adults seeking mortgages are protected against age-based discrimination from lenders. You can buy a home at any age as long as you qualify for a mortgage loan.
- When you are retired, it can be challenging to qualify for a mortgage if you carry too much debt or have limited income and savings.
- While most retirees use standard mortgage products, some specialized options – such as reverse mortgages – are designed for homeowners ages 62 and older.
Why Get A Mortgage In Retirement?
There are many reasons to consider a new home or a refinanced mortgage in retirement. You may want to move closer to your children, buy a vacation property to spend winters in a warmer climate, or simply downsize from your current home.
If you want to age in place, refinancing your existing mortgage to tap your home’s equity can help you pay for necessary repairs or renovations. In addition, if you are trying to trim your housing costs, you might consider refinancing in your later years to pay down high-interest debt or reduce your monthly mortgage payment with a lower interest rate.
Of course, living on a fixed income presents new financial considerations, especially for older borrowers. But rest assured, you can obtain a mortgage at any age if you can qualify for one.
Compare Mortgage Offers From Verified Lenders:
Can I Get A Mortgage In Retirement?
Older adults can apply for a mortgage or refinance an existing one without being worried about ageism. The Equal Credit Opportunity Act expressly “prohibits discrimination in any aspect of a credit transaction,” which includes mortgages.
This means that if you are retired, you can apply for the same types of mortgages as younger borrowers can. Like any applicant, you’ll be responsible for meeting the usual criteria for home loans, such as solid credit scores and a manageable debt-to-income (DTI) ratio, and you’ll need to demonstrate you can afford your mortgage payments.
What’s Your Goal?
Buy A Home
Discover mortgage options that fit your unique financial needs.
Refinance
Refinance your mortgage to have more money for what matters.
Tap Into Equity
Use your home’s equity and unlock cash to achieve your goals.
How Do I Verify Income And Assets To A Lender?
The underwriting stage is where getting a mortgage in retirement differs from that of buyers with traditional paychecks. Retirees typically need to provide different documentation to their lender than employed workers do. This is because many rely on a fixed income from various streams, including Social Security, retirement accounts, annuities and pension payments. Documentation of these income streams can be used to obtain a home loan.
Below is a list of common paperwork you may need to show proof of income to your lender when applying for a mortgage in retirement.
- Federal tax returns and IRS Form 1040 showing any interest, dividends or rental property
- Asset statements showing the money in your retirement accounts, like a 401(k) or IRA.
- Retirement award letters or 1099s proving you receive income from a pension
- Social Security statements and award letters
- Annuity contracts
- Bank statements showing recurring deposits or payments
- Proof of other liquid assets, such as money market accounts, stocks, bonds and certificates of deposit
Note that some lenders may require proof of continuous income for up to 3 years from several of these sources.
Some lenders offer what are called “asset-based mortgages,” though they are uncommon. These mortgages allow the lender to use your assets as proof of income. This can be helpful if you have limited retirement income but own a substantial amount of liquid assets like certificates of deposit, savings accounts and money market accounts. With this type of mortgage, lenders would calculate your eligibility based on your investment portfolio and retirement savings.
Ready To Become A Homeowner?
Get matched with a lender that can help you find the right mortgage.
Home Loans And Refinance Options For Retirees
If you are an older adult, you likely already own a home. About 79% of households ages 65 and older owned their home in 2022, according to the U.S Census Housing Vacancy Survey.
If this is the case, you have the option to sell your home to buy a new one, purchase a second home or refinance your primary residence – just as younger homeowners do. You just need to qualify for the home loan or refinance.
And if you don’t currently own a home, you can still plan for future homeownership. This might include saving for a down payment, exploring first-time home buyer programs or considering flexible living arrangements, such as renting a room in a shared home or getting a roommate of your own, if your landlord allows it, to save money. Accessory dwelling units, secondary living spaces on the property of a primary home, are gaining in popularity for people who want to downsize.
Here are some common home loan options that may be suitable for older adults and retirees.
- Conventional mortgage: You can get these conforming or non-conforming loans from neighborhood or national banks, credit unions, or other lending institutions. Conventional mortgages allow down payments as low as 3% – 5%, though borrowers who put down less than 20% typically must pay private mortgage insurance.(PMI). You can use a conventional loan for a new home, a vacation or if you prefer to refinance your mortgage.
- Home equity loan: This is a kind of second mortgage that lets you borrow a lump sum against the equity in your existing home. If you are an older adult, you may have built up considerable equity that you can utilize. Home equity loans are paid off in monthly payments, which you must pay in addition to your primary mortgage. A home equity loan could be a good idea if you plan on making repairs or renovations to allow you to age in place, especially if you are equity-rich and have a low primary mortgage payment.
- Home equity line of credit (HELOC): A HELOC lets you borrow against your home’s equity, working much like a credit card. For the first 10 years, called the draw period, you can borrow, repay the money and borrow again, up to your credit limit. During the borrowing period, individuals typically make interest-only payments on the amount borrowed. After the draw period ends, the repayment period begins and you can’t borrow anymore. Any remaining balance must be paid off over the repayment period. It’s worth noting that most HELOCs have variable interest rates, so the amount you owe during the repayment period can change.
Why choose it? HELOCs give flexibility, which is perfect if you want to spread out home improvements or only borrow as needed. A home equity loan, by contrast, gives a fixed lump sum and fixed payments, which could be better for one-time expenses, such as renovating your home to age in place. If a homeowner with a HELOC or any mortgage loan passes away, heirs typically must either assume the loan, refinance it, or sell the home to pay off the remaining balance. - Reverse mortgage: Specifically designed for retirees and homeowners ages 62 and older, a reverse mortgage lets you convert your equity into cash and eliminates monthly mortgage payments entirely – though you’re still responsible for property taxes and homeowners insurance. It doesn’t need to be repaid until the house is sold, is no longer your primary residence, or is inherited by beneficiaries after you pass away. Reverse mortgages can free up funds, so they can be helpful for adults on fixed incomes. However, reverse mortgages are complex and aren’t risk free. The Consumer Financial Protection Bureau recommends speaking with a HUD-approved counselor who specializes in reverse mortgages if you are considering one.
- Rate-and-term refinance: This type of mortgage refinance, just as it sounds, enables homeowners to adjust the rate and term of their primary mortgage, thereby lowering their monthly payment or providing a shorter repayment term. You can use an online calculator to see how refinancing could decrease your monthly payments.
- Cash-out refinance: This is another way to turn your home equity into cash to improve your current home when aging in place. You can opt for a traditional cash-out refinance or consider an FHA or VA cash-out refinance if you have one of these government-backed loans and qualify. The downside to any cash-out refinancing option is that since it involves raising the amount of your total mortgage principal, it will also typically increase your monthly payments.
- Cash-in refinance: With a cash-in refinance loan, you can put a lump sum toward your mortgage to increase your home equity. For retirees living on a fixed income, this could make a big difference: A smaller loan means lower monthly payments, less interest over time and also more flexibility to use your money for everyday expenses, travel or other retirement plans.
Take The First Step To Buying A Home
Find a lender that will work with your unique financial situation.
The Pros and Cons Of Getting A New Mortgage In Retirement
A home can provide comfort, stability and even long-term financial benefits. At the same time, taking out a new mortgage does pose potential risks, from added debt to unexpected expenses. Reviewing the advantages and disadvantages may help you make an informed decision.
Pros
- Find a home that fits your retirement needs: If your current home doesn’t suit your lifestyle as a retiree, buying a new one lets you move closer to family, downsize or switch from a multistory house to a single-level home.
- Enhance your current home for aging in place: Using a home equity loan or HELOC can fund renovations to help you age in place, such as adding a first-floor bedroom, wider doorways or a walk-in shower, to make your existing home safer and more comfortable as you get older.
- Estate planning: A home can be a valuable asset to leave to your beneficiaries upon your passing.
Cons
- Loan terms: Long-term mortgages like standard 30-year loans may extend beyond the period you expect to stay in the home. This can leave your heirs responsible for payments or force them to sell it.
- Maintenance costs: If you buy a new single-family home as a retiree, you may need to pay for upkeep if you can’t do the tasks yourself. This may be a financial hardship for some people on fixed incomes.
- More scrutiny from lenders: While lenders are not allowed to discriminate against older applicants, you do have to qualify for the loan, which may be harder if you have fixed income streams, including any non-traditional income ones, such as investment dividend payments.
- Closing costs: There are upfront costs when you take out a mortgage, usually you’ll owe between 2% – 6% of the loan.
The Pros and Cons Of Refinancing In Retirement
Your home can remain a valuable asset after you’ve retired, but taking out a new mortgage loan comes with pros and cons. Let’s break down the benefits and the drawbacks to help you make an informed decision.
Pros
- Lower interest rates: If you can refinance your home with a lower interest rate, you can decrease your mortgage payment and free up some of your monthly income.
- Enables home improvements: As you age, you may need to renovate your home to help you age in place. You might need grab bars in the shower, a single-floor bedroom and bathroom or other customized accessibility features. A cash-out refinance mortgage could help cover the costs of any custom work.
Cons Of Refinancing In Retirement
- Closing costs and fees: You’ll typically need to pay between 2% – 6% in closing costs and fees when you refinance a mortgage.
- Less equity: A cash-out refinance adds new debt and reduces the home equity you might need later in life or wish to pass on to loved ones.
- May impact estate planning: If you want to leave your home to heirs but the home has been recently refinanced, they might have to sell the house if they can’t afford to pay back the debt.
What To Consider Before Getting a Mortgage In Retirement
Whether you’re refinancing your current mortgage or applying for a new one in retirement, it’s essential to think carefully about how you want to live and what you can realistically afford. If you plan to age in place (whether after a move or in your current home), a new mortgage or refinance could be a good option – since the longer you stay in your home, the more equity you build. However, if your plans in retirement include a lot of long-term travel or frequent visits to friends and family, you might not be at home enough to fully enjoy a significant new investment.
That’s why, if you decide to buy a new home (whether for the first time or after selling your current one), it’s essential to choose a house that fits both your budget and your lifestyle. A condo with amenities might be easier to manage – both financially and physically – than a large farmhouse on several acres, for example. In retirement, when income may be fixed or limited, economic security is important – and you want your home to be a comfort, not a burden.
FAQ
The Bottom Line: Consider Your Retirement Budget And Lifestyle Before Getting A New Mortgage or Refinancing
It’s possible to qualify for a mortgage in retirement, as long as you can show proof of income from retirement funds and other assets. You may also choose to refinance your original mortgage for a lower rate or take a cash loan from your equity; retirement doesn’t close the door on any of these options.
However, it’s essential to consider your finances and plans for the future first, and how you want to allocate your time and money, before taking out a loan that may outlive you.
Ben Shapiro
Ben Shapiro is an award-winning financial analyst with nearly a decade of experience working in corporate finance in big banks, small-to-medium-size businesses, and mortgage finance. His expertise includes strategic application of macroeconomic analysis, financial data analysis, financial forecasting and strategic scenario planning. For the past four years, he has focused on the mortgage industry, applying economics to forecasting and strategic decision-making at Quicken Loans. Ben earned a bachelor’s degree in business with a minor in economics from California State University, Northridge, graduating cum laude and with honors. He also served as an officer in an allied military for five years, responsible for the welfare of 300 soldiers and eight direct reports before age 25.
