Despite having higher credit scores, older borrowers are more likely to get rejected when applying for a mortgage, analysis shows — here's what might be holding them back

What’s holding them back?

To qualify for a mortgage, lenders typically look for a credit score of 620 or above, and higher scores often help borrowers secure better rates or terms on their loan.

Older generations have the highest average FICO scores — 742 for baby boomers and 760 for the silent generation — according to credit reporting company Experian. Unfortunately, that’s not enough to convince lenders that older borrowers have the means to pay off their loans.

Although it’s illegal for lenders to discriminate based on age, older borrowers face setbacks when it comes to factors such as income and assets, says Shashank Shekhar, CEO of mortgage lender InstaMortgage.

“If you’re retired or close to retirement, your income may be lower than it was when you were working full time,” Shekhar told Moneywise. “This can make it more difficult to qualify for a mortgage.”

Economist Natee Amornsiripanitch, who wrote the Philadelphia Fed analysis, noted “insufficient collateral” could account for 50% to 70% of mortgage application rejection probability.

Amornsiripanitch says younger Americans often borrow against their first homes, while older borrowers are more likely to use their second homes or investment properties as collateral. If there’s not enough equity in their property — perhaps because the value declined or the homeowner was unable to maintain its upkeep — this could lead to rejection as well.

Additionally, homeowners may struggle to secure financing if they’ve carried mortgage debt into their retirement.

Amornsiripanitch’s report analyzed data from millions of mortgage applications through the Home Mortgage Disclosure Act between 2018 to 2020.

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Denial rates can vary based on the loan

A 2021 report from Washington, D.C.-based think tank the Urban Institute also found higher mortgage denial rates with age — but discovered the likelihood of getting your application rejected could depend on the type of loan being applied for.

For example, applying for a home equity line of credit (HELOC), which gives homeowners access to cash by borrowing from their home value, resulted in similar rejection rates across all age groups.

But applications for cash-out refinancing — in which borrowers replace their old home loan with a new one that has a higher balance in order to receive the difference as cash — were denied to over 21% of applicants over 75 in 2020, compared to just 14.6% of those under 65.

On the flip side, the younger the borrower, the higher the likelihood of rejection for a home equity conversion mortgage (HECM). This is the most common type of reverse mortgage and is backed by the Federal Housing Administration.

More: Best reverse mortgage lenders

What can older borrowers do?

Older borrowers still have options when it comes to securing a home loan or refinance.

“One tip is to look for lenders that understand the nuances of retirement-age income, which isn’t a one-size-fits-all calculation,” Chris Birk, vice president of mortgage insight and education for Veterans United Home Loans, told Moneywise.

For example, Birk says veteran borrowers could focus on lenders that specialize in VA lending, especially if they’d like to make use of their home loan benefits. Qualified veterans can purchase a home with no down payment, flexible credit guidelines and low mortgage rates.

Shekhar also suggests getting a co-signer or co-borrower with a higher income to help you qualify for a home loan. Or, consider a reverse mortgage.

Older American homeowners boast over $12 trillion in home equity wealth, according to the National Reverse Mortgage Lenders Association/RiskSpan Reverse Mortgage Market Index.

But they’re also less likely than younger generations to tap into home equity products, according to research commissioned by Finance of America Reverse.

Shekhar recommends a reverse mortgage to help older borrowers supplement their retirement funds or help pay off their existing mortgage. In many cases, they won’t have to pay the lender back until they either move out of the property, sell their property or pass away — in which case, the debt passes on to their spouse or children.