Overcoming Home Financing Challenges for Older Borrowers

Securing home financing can present unique challenges for individuals reaching their golden years. Recent research indicates that older borrowers often face higher mortgage rejection rates and encounter income, assets, and collateral difficulties. However, strategies are available to improve outcomes for older borrowers seeking home loans or refinancing. This article will explore the reasons behind these challenges and provide actionable advice to help navigate the lending landscape.

The Impact of Age on Mortgage Approval:

The Federal Reserve Bank of Philadelphia analysis reveals that mortgage rejection rates tend to rise with age. While the overall refinance rejection rate stands at 17.5% across all ages, this figure increases to over 19% for applicants in their 60s and exceeds 20% for applicants in their 70s. Furthermore, older applicants often face slightly higher interest rates on refinances and new purchase loans.

Factors Contributing to Challenges:

Though age discrimination in lending is illegal, several factors contribute to older borrowers' difficulties. Despite having higher average credit scores—742 for baby boomers and 760 for the silent generation—lenders may hesitate to approve loans based on income and assets. Retirees or those nearing retirement may experience a decrease in income compared to their working years, making it harder to meet traditional lending criteria.

Insufficient collateral is another significant factor affecting the probability of mortgage application rejection, as highlighted by economist Natee Amornsiripanitch. Older borrowers are more likely to use second homes or investment properties as collateral, and a lack of equity in these properties can lead to rejection. Additionally, carrying mortgage debt into retirement can pose challenges for homeowners seeking financing.

Loan-Specific Denial Rates:

An Urban Institute report found that mortgage denial rates can vary depending on the type of loan being applied for. While home equity lines of credit (HELOCs) had similar rejection rates across all age groups, cash-out refinancing applications faced higher denial rates for applicants over 75 than those under 65. Conversely, younger borrowers faced a higher likelihood of rejection for home equity conversion mortgages (HECMs), which are reverse mortgages backed by the Federal Housing Administration.

Strategies for Older Borrowers:

Older borrowers can secure home financing or refinancing despite the challenges. One recommended approach is to seek lenders that understand the nuances of retirement-age income, as it requires a tailored assessment. For example, veterans could explore lenders specializing in VA lending, leveraging benefits such as no down payment, flexible credit guidelines, and low mortgage rates.

Another strategy is to consider obtaining a co-signer or co-borrower with a higher income, which can help qualify for a home loan. Additionally, reverse mortgages present an option for older borrowers to tap into their home equity. Research commissioned by Finance of America Reverse reveals that older homeowners possess over $12 trillion in home equity wealth. Yet, they are less likely than younger generations to utilize home equity products. Reverse mortgages allow borrowers to supplement retirement funds or pay off existing mortgages, with repayment typically deferred until they move out, sell the property, or pass away.

Conclusion:

Securing home financing can present challenges for older borrowers, but there are strategies to improve outcomes. Older borrowers can navigate the lending landscape more effectively by seeking lenders who understand retirement-age income, considering co-signers or co-borrowers, and exploring reverse mortgage options. It is essential for this demographic to be aware of the specific hurdles they may face and to utilize the available resources and expertise to achieve their homeownership goals. With the right approach, older borrowers can enhance their financial security and enjoy the comforts of a home in their retirement years.

Securing a mortgage as an older borrower can sometimes feel like being an experienced captain with a spotless sailing record, yet facing unexpected rough seas. Imagine you have sailed the seas for decades, accumulating a wealth of knowledge and expertise, only to find that when you're ready to dock your ship and retire on the shore, the harbormaster questions your ability to navigate. Despite your impeccable sailing credentials, they hesitate due to new regulations and concerns about your ship's maintenance and upkeep. Similarly, older borrowers may face hurdles when applying for a mortgage despite higher credit scores due to income, collateral, and debt-to-income ratios. It's crucial to understand these challenges and chart a course that includes tailored strategies to reach the safe harbor of homeownership in retirement.

Raymond James Financial Services and your Raymond James Financial Advisors do not solicit or offer residential mortgage products. They cannot accept any residential mortgage loan applications or offer or negotiate teams of any such loan. You will be referred to a qualified Raymond James Bank employee for your residential mortgage lending needs.

Lynch Retirement Investment Group 2016, 2017, 2018, and 2019

John M. Lynch, CIMA®, CPWA®

John M. Lynch, CIMA®, CPWA® Managing Director – LRIG, Financial Advisor – RJFS

Andrew Fentress, CFP® Financial Advisor

Adam Tobin, CFP®, CRPC Customer Relationship Manager

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