Sep 26, 2024
Buying a dream retirement home is a fantasy for many people, but the big question is — can it become a reality?
Not every older American has enough money to buy a house in cash for their golden years. Even those who do may not want to tie up a huge chunk of their money in an illiquid asset.
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So, can retirees get a mortgage to purchase a property? If you're in your mid-60s and are hoping to buy a Florida property, for example, here's what you need to know.
No discrimination on the basis of age
For retirees hoping to get a mortgage, there's some good news. The Equal Credit Opportunity Act prohibits lenders from discriminating against potential borrowers on the basis of age. This means the simple fact you're 67 can't impact your chances of getting a loan.
One big factor that does affect your borrowing prospects, however, is your income relative to your debt. You'll have to meet your lender's debt-to-income (DTI) requirements and show you have proof of stable income sufficient to pay your new mortgage loan plus any other bills you may have.
The Consumer Financial Protection Bureau suggests maintaining a ratio of 36% or less, but some lenders may allow up to 43% or higher.
A lender will also consider your credit score and down payment. While some lenders allow down payments as low as 3%, aim to put 20% down. This could help to keep your housing costs affordable, open up access to a broader choice of lenders and reduce the risk of ending up with negative equity in case you need to sell if something happens — such as your health taking a turn.
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Be ready to provide proof of income
It's up to you to provide sufficient proof of funds to convince mortgage lenders you're a reliable borrower. The good news is that lenders will consider multiple sources of retirement income when calculating your DTI, including the following:
- Social Security benefits
- Pension income
- Retirement plans
- Investment income
- Annuity income
Be ready to provide proof of your finances to reassure lenders about how much money you'll actually have each year to devote to your loan.
Should you buy a house as a retiree?
While you absolutely can take out a mortgage as a retiree, think carefully about whether you should.
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If you commit to a 30-year home loan at 67, you could be paying it until you're 97. You may be OK with that, but consider the long-term picture when you decide.
For those on a fixed income, it's essential to ensure that your housing payments are affordable. This can be a challenge in today's world, where mortgage rates are around 6%. Making yourself "house poor" is an especially bad move as a senior since you can't count on your income increasing as time moves forward.
You may also discover life in your later years to be more precarious. Finding a place to live where health care is easily accessible can be important.
Taking on a mortgage is a big commitment, so make sure it's really the right move for you.
If you think through all these issues and decide to buy, take heart in knowing lenders have to treat you the same as any other borrower. If you're in a good financial position to make your purchase, you should have a choice of loan offers and can pick one that's right for you.
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Christy Bieber has 15 years of experience as a personal finance and legal writer. She has written for many publications including Forbes, Kilplinger, CNN, WSJ, Credit Karma, Insurify and more.
