Elderly homeowners face a special predicament when it comes to refinancing. What used to be as simple as applying for any other type of loan is now quite a feat. Lenders don’t just hand out mortgages any longer due to the Dodd Frank Act. Now, you have to prove beyond a reasonable doubt that you can afford the loan. If the lender does not go through the proper steps, they could face serious consequences for providing you with a loan.
As a senior on a fixed income, this extra required scrutiny can hurt your chances of approval. Even if you have thousands of dollars saved up for retirement, lenders cannot use this money as a part of your income. This translates into a higher than allowed debt ratio and difficulty refinancing. Luckily, there are options for you, though.
Loan Modification
Sometimes, the best place to start is with your current lender. They may be able to provide you with a loan modification. This is not technically a refinance, but it helps to change your loan terms to make them more affordable. You may have an easier time if you have made your monthly payments on time and can demonstrate your difficulty in making the payments without sacrifice. The last thing your lender wants is to foreclose on your home and take responsibility for it. They would rather find a way to make the payments work for you. Given the fact that you are elderly, you probably don’t owe a large amount of the principal still. This can work in your favor. The less you owe a lender, the more likely they are to work with you.
Reverse Mortgage
Another option you may have is a reverse mortgage. This is a different type of refinance than your standard loan, which pays off your existing loan and starts a new loan term for you. Instead, this mortgage pays you without the need for you to make monthly payments. The amount you withdraw becomes due when you no longer own the home or when you pass away – whichever occurs first. The Reverse Mortgage is one of the most popular options for elderly homeowners and refinancing. It does not require you to verify income as you would for a standard refinance and you do not have to make monthly payments.
There are some standard requirements you must meet in order to qualify for the Reverse Mortgage. They include:
- You and your spouse must be at least 62 years old. The age of the youngest spouse is what qualifies you for the loan. For example, if you are 65 and your spouse is 62, the lender would use your spouse’s age for qualifying purposes.
- You should own your home outright or owe just a small amount of the original principal on your loan. If you do have a lien on the home, the proceeds from the Reverse Mortgage must pay the lien off first before you receive any funds.
- You must live in the home full-time.
- You must be able to prove that you can pay the real-estate taxes and homeowner’s insurance moving forward.
The amount of money you receive from a Reverse Mortgage depends on a few factors:
- The value of the home
- The age of the youngest homeowner
With a Reverse Mortgage, you receive more money the older you are because it lowers the risk for the lender. For example, a 75-year old would receive more money than a 62-year old. This is because the 62-year old has a longer life expectancy. Since the bank lends you the money and doesn’t expect repayment until you sell the home or pass away, you could have the loan out for a much longer period than a 75-year old with a shorter life expectancy.
Standard Refinance
Just because you are elderly, doesn’t mean you won’t qualify for a refinance. It depends on a variety of factors including:
- The amount of your income (fixed or not)
- The amount of your current debts
- The debt ratio (comparing your debts to your income)
Some elderly people don’t have a large amount of debt outstanding. They managed to pay off their credit cards and don’t have any car loans. If the only debt you have to cover is your mortgage, you may be able to qualify for a standard refinance. If you need money to pay to fix up your home, cover medical bills, or any other reason – you might be able to take the cash out of the equity of your home. Of course, cash-out refinances have stricter rules than a standard refinance, but it is not automatically out of the question just because you are elderly.
Elderly Homeowners Have Options
Basically, elderly homeowners have a variety of options. It depends on your circumstance and the type of payment you can afford. If you think you can make monthly payments based on your fixed income, then try to apply for a standard refinance. On the other hand, if you know you cannot pay a monthly mortgage, but you need money in order to cover your daily living expenses, consult with a lender who offers the FHA Reverse Mortgage. As a last option, you could always try to secure a loan modification. This might be the toughest answer because it requires the lender to either decrease your interest rate or stretch out your term (which is unlikely for an elderly person).
No matter what you decide, make sure you look at all of your options. There are many lenders available today who can help elderly homeowners. There are also many more programs available than there were before. Talk to your lender to see what he offers – if he doesn’t have any options for you, don’t be shy about shopping around. Every lender offers different programs and charges different fees. Find the program that is the most affordable for you and refinance to help make your finances affordable again.
