Can you be too old for a mortgage? According to the law, you cannot. A lender cannot discriminate against you for your age. But they can deny your application for other reasons, such as credit issues or debt ratio problems.
A lender can even deny your application if they don’t think you make enough money or your income isn’t reliable enough. This may be a factor if you collect disability or social security income but don’t have proof of its continuance. At a minimum, lenders need to see that your income will continue without a doubt for the next three years. If you can’t prove that, you may not qualify.
Keep reading to learn other problems ‘older’ borrowers may face.
Credit Score Issues
Lenders like credit scores above 680 as this signifies that you are financially responsible. If you have a credit score below 680 and you are an ‘older’ borrower, it could be a combination a lender isn’t willing to take. But they have to be able to decline your application based on your credit, not your age.
Lenders don’t look at just your credit score, either. They look at it in combination with a variety of other factors, such as your income, debt ratio, and assets. It’s one piece of the puzzle that lenders look at and it’s usually the first factor. If your credit score doesn’t meet the program’s guidelines, the lender won’t move forward with your application.
Debt Ratio Issues
Hopefully, as an older borrower, you are out of debt, but you may not be. If you still have a lot of consumer debt on your plate, adding a mortgage could put you over the edge. Each loan program has a specific debt ratio requirement that you must meet. Many of them are pretty liberal, but if you have low, fixed income, the DTI could be an issue for you.
In general, you must meet the following debt ratio guidelines:
- Conventional loan – 28% housing ratio and 36% total debt ratio
- FHA loan – 29% housing ratio and 41% total debt ratio
- VA loan – 43% total debt ratio
- USDA loan – 29% housing ratio and 41% total debt ratio
Down Payment Issues
Unless you are eligible for a VA or USDA loan, you’ll need a down payment on the home. If you don’t have equity in another home that you are going to sell, you’ll have to dig into your savings for the down payment.
FHA loans require at least a 3.5% down payment and conventional loans require at least a 5% down payment. Without the money down, you won’t be able to get a loan no matter how old you are. FHA and Fannie Mae do allow gift funds for the down payment, but older borrowers may not have access to gift funds like younger borrowers do that often get down payment gifts from their parents.
Any borrower, again no matter their age, must be able to prove stable and reliable income in order to get a mortgage. This doesn’t mean you have to work a 40-hour a week job to get the income, though. You can make income in any of the following ways:
- Full-time job
- Part-time job that you’ve had for at least 2 years
- Social security income
- Pension income
- 401K income
- Disability income
The key to approval is showing the lender that the income is stable and reliable. In other words, you must receive around the same amount of money the same time each month. You must have proof of receipt of the income for at least the last 12 months and proof that the income will continue for at least the next three years.
The bottom line is that you can get a mortgage whether you are 21 or 91-years old. What determines your likelihood of approval, though, is your qualifying factors. The larger the down payment, the lower the debt ratio, and the higher your credit scores are, the more likely you are to get approved for the loan.