Home loans for the elderly
Just like other applicants, retirees and senior citizens have many options available for home loans. Let’s review some options that might be suitable for seniors, but keep in mind the specific challenges we looked at earlier.
A classic loan is any loan that is not guaranteed by the federal government and is issued by private mortgage lenders. These may be credit unions, banks or other financial institutions. Conventional loans can be conforming or non-conforming. A conforming loan can be bought by Fannie Mae or Freddie Mac, unlike non-conforming loans. Generally, it makes more financial sense to pay a larger down payment of around 20% for conventional loans, as you won’t have to pay for private mortgage insurance.
Home Equity Loan
A home equity loan, often called a second mortgage, is a loan that lets you use the equity in your home as collateral to borrow money. You’re essentially securing the financing for the loan with the value of your home, which means the lender can ultimately repossess your home if you can’t repay the loan. It is important to know all the risks involved before using your house as collateral. Home equity loans are repaid in monthly installments, just like a primary mortgage.
Home Equity Line of Credit (HELOC)
A home equity line of credit (HELOC) is a type of home equity loan that serves as a line of credit, hence its name. A HELOC is a great option for lenders who need funds for home improvement projects or who need more time to pay off debt. A HELOC works by allowing homeowners to access the equity in their home to provide cash for expenses, meaning the homeowner can get cash without taking out another loan. A HELOC is an easy way to access revolving credit, but it’s important to consider your situation as a senior before using this home loan. Do your research and compare loan terms before taking out a HELOC.
A reverse mortgage is perhaps the most suitable loan for senior and retired borrowers, as it is a loan for homeowners who are at least 62 years old to turn some of their home equity into cash. If older borrowers need to supplement their retirement funds, reduce their monthly mortgage payments, or even pay for home care, a reverse mortgage can be extremely helpful.
Note that the lender must have enough equity in their home to qualify for a reverse mortgage. This is usually around 50%, but the exact percentage varies for each lender. It must also be the lender’s primary residence and lenders must go through a financial assessment in order to qualify for a reverse mortgage.