An increasing number of older Americans are using mortgages to buy homes, even if they have cash, to take advantage of low interest rates and tax breaks. Banks are willing to lend — as long as borrowers have regular monthly income or retirement assets.
Paying off the house used to be a cause for celebration, but many retirees no longer see it that way.
An increasing number of older Americans prefer to have a mortgage. They may have the means to buy with cash but choose instead to take advantage of prevailing low interest rates and tax breaks while freeing up their savings for other uses.
Some may wonder if they can still qualify for a home loan without having a full-time job. But more often than not, banks are willing to lend — as long as you have regular monthly income, like a pension and Social Security, or retirement assets.
About 42 percent of households headed by someone age 65 to 74 have home-secured debt, according to the Federal Reserve’s 2013 Survey of Consumer Finances, its most recent study. This compares with just 18.5 percent in 1992 and 32 percent in 2004.
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These figures are likely to continue rising as the baby-boom population ages — an estimated 10,000 a day turn 65 — and remains active in the housing market.
Beth Holland and Chuck Queener, who are both semiretired and in their early 70s, chose to finance the recent purchase of a 2,200-square-foot condominium in a 55-plus community in Newtown, Connecticut, with a 30-year mortgage fixed at 4.25 percent.
“We could have paid cash for the place,” said Queener, a graphic designer, “but our financial adviser suggested that we get a mortgage so we can get a tax deduction, and our money keeps working for us.”
Their investments, which include Individual Retirement Accounts, along with monthly income from Social Security and annuities — together with their good credit — helped the couple qualify for a mortgage. However, both Holland, a yoga instructor, and Queener found the whole process more arduous than earlier applications they made for mortgages.
Lenders “look at every penny you got coming in,” Queener said. “It was a strenuous process. Every time we turned around, there was more paperwork to fill out.”
Those who have been out of the mortgage-application process for a while and are looking to buy a vacation or retirement home might be surprised by all the extra hoops they have to jump through.
The 2008 financial crisis brought about more stringent lending regulations, which have made qualifying for a mortgage more difficult for just about everyone, but especially so for the self-employed with fluctuating earnings and retirees on fixed incomes. Lenders must now adhere to guidelines that include lower debt-to-income ratios.
Older borrowers “shouldn’t be making assumptions based on what happened in the past,” said Brian Koss, the executive vice president of the Mortgage Network, a lender based in Danvers, Massachusetts.
But retirees were also given some latitude. Both Freddie Mac and Fannie Mae, the government-sponsored enterprises that buy mortgages from lenders, have since instituted policy changes that allow eligible retirement assets to be used to qualify under certain conditions.
There are other mortgage programs that can help. Fannie Mae offers a mortgage (known as HomeReady) that allows income from nonborrowing household members, like adult children, to be counted.
Lesser-known reverse-mortgage purchase plans allow older borrowers to buy a home without having to come up with a down payment. And veterans can take advantage of attractive loan terms from the Department of Veterans Affairs.
To improve your chances of getting approved for any mortgage, Koss suggests meeting with a loan officer or financial adviser before retiring. “It’s never too early to begin to ask questions and run scenarios to determine the impact,” he said.
It’s important to remain on the credit grid, even if it means charging a few items each month and quickly paying off the balance. “People like to retire debt-free, and that’s all fine and dandy, but you don’t want to avoid credit altogether,” said Greg McBride, the chief financial analyst for Bankrate, which tracks the lending industry.
“Poor credit, no credit or lack of verifiable income — all a big problem,” he added.
Some lenders can be more flexible than others. “I encourage people to shop at least three lenders,” said David H. Stevens, the president of the Mortgage Bankers Association, “and then likewise, ask real-estate agents or financial planners, who are good resources for helping a retiree.”
Mark Given, a Coldwell Banker agent in Littleton, North Carolina, with a seniors real- estate specialist designation, said he often points older buyers toward community banks. Unlike the larger national brands, they can offer more flexibility in underwriting guidelines through in-house, or portfolio, loans.
“The smaller banks are a lot more inclined to look at the individual and not just the numbers,” Given said. “They also have a better understanding of the local market and the whole appraisal process.”