Real Estate Matters: Seniors having trouble qualifying for new mortgage
Q: There are thousands of seniors like us who are “stuck” in their homes because they do not “qualify” for a mortgage, let alone a refinance of their existing mortgage. All our funds are tied up in our houses or condos and we’re barely surviving on our monthly Social Security checks.
If seniors have a mortgage and wish to move to a smaller home, they can’t because no one will give them a new mortgage, even if they have a great credit history and credit score, have a sterling bill payment record for 25 or more years, and have adequate savings.
We are stuck because our income-to-expense ratio is considered to be “too high” to qualify for a mortgage. We want to leave our home and move elsewhere, but no one seems to have a solution. Do you have any ideas?
A: You raise several important issues in your email: senior citizens who have equity in their homes, but can’t refinance their existing mortgages or get a new conventional mortgage and seniors who want to move from their current residences, but won’t qualify for the mortgage they’ll need to purchase a new home. Both of these are a version of the adage “house rich, cash poor.”
If you have a loan today and you’re able to make your payments, you might not understand why a lender would turn you down for a new mortgage (at perhaps a lower interest rate than your current mortgage) or home equity loan. Lenders take a risk every time they make a loan. They are required by the government to loan money based on your ability to repay. And the “ability to repay” is set according to specific formulas, depending on the type of loan you have.
When you live on Social Security, it’s guaranteed income, which is helpful. Because lenders like to know your income stream will continue. But, if that’s all the income you have, it’s tough to qualify for a mortgage of any reasonable size, even at today’s extremely low interest rates.
So, what can you do? It seems as if you want to move from your current home. You might try applying for a loan with a credit union or community bank, which might keep your loan in its portfolio and would then set its own parameters for approving your application. You might also apply for an FHA loan, which would have higher debt-to-income thresholds.
If you can’t qualify for a mortgage, your options are to buy a home for whatever amount of cash you will receive after you sell your current home, or rent.
There is nothing wrong with going from being a homeowner to becoming a renter. It’s typically less work for you and you’ll have flexibility in case you need to move quickly to an assisted living facility or nursing home later in your golden years. But we understand that if you’ve been a homeowner, and enjoy that cachet and control, you may not want to rent. Fair enough.
Buying a new place with cash seems like a good goal. Perhaps you can trade your larger residence for a smaller condominium or even a small ranch home.