I’m a Senior, Looking for a Mortgage. Will I Be Treated Fairly?

Great question. The first thing to know is that the Equal Credit Opportunity Act is on your side!

Under this federal law, lenders may not consider an applicant’s age as a reason to approve or turn down your application. Simply stated, seniors can get mortgages if they demonstrate their ability to make the monthly mortgage payments, in accordance with the lender’s standard criteria.

That said, there are several things to know about applying for a mortgage as an older adult. It’s not always so easy in reality. And the older you get before submitting your application, the bigger the hurdle.

The subtle factors in play might surprise you.

Older Adults and Mortgages: A Level Playing Field?

Lenders apply the same guidelines to applicants of various age groups. Assuming a senior home buyer is of sound mind and therefore eligible to enter into contracts, the applicant should receive equal consideration under the law. Federal law says you can’t turn away a loan applicant on account of race, color, religion, national origin, sex, or family status — or age. When a hopeful borrower is asked for their birth date, that is for identification and demographic data purposes.

On its face, that sounds like equal access to financing. But there are important nuances in practice. Because our ages do impact the way a lender views our credit profiles. 

According to recent research coming out of Boston College and described in a 2023 working paper from the Federal Reserve Bank of Philadelphia:

While the law prohibits discrimination on the basis of any of these factors, it does not prohibit lenders from using age as part of a credit scoring system.

So, in theory, yes: Anyone with good credit and a large enough down payment can get a mortgage. And yet lenders may — legally — take our ages into account to discern our credit strengths and risks. Indeed, as the research paper’s author states, “The relationship between age and rejection is large and robust.” And yes, it holds true whether the applicant goes for a government-backed or conventional loan. 

Who knew? Most people assume seniors have relatively strong credit profiles. After all, they’ve got decades of credit-building under their belts. Many are sitting on substantial savings. So the results of the research is surprising.

The Shorter the Borrower’s Life Expectancy, the Harder It Gets.

Our chances of getting turned down by lenders rise with our age, year by year. Why? A borrower’s death means the loan could more probably get paid off early or go into default. Both scenarios mean the lender keeps less.

“Therefore, a rational and risk-averse lender should consider age-related risks when making lending decisions,” writes researcher and author Natee Amornsiripanitch.

So, a lender might call on the senior borrower to:

  • Bolster their debt-to-income ratio if they’re taking out a first mortgage. This can frustrate older adults, especially those who are retired or semi-retired. They often have modest incomes — and fewer opportunities to fortify those incomes.
  • Put up more collateral if they’re taking out a second mortgage. Being turned down for “insufficient collateral” is another way of saying the applicant lacks enough home equity to take out the requested loan amount.

These are the two most commonly presented reasons the banks produce when turning away a senior applicant.   

And there’s another reason a lender might call for more income or more collateral. Studies have shown that older homeowners can run into difficulties with home upkeep.

Of course, interest and ability in maintaining a home’s value will vary from household to household. But if statistics show that the value of the collateral (the home) could decline, then a lender will want more coverage for the statistical risk. And this can catch some older applicants by surprise. There’s a message  here for us all. It’s essential to have ample savings if we plan to maintain a home and enjoy a comfortable retirement

So while the reason a lender marks down may be “insufficient collateral,” age could be a key factor behind that reason.  The stats show:

  • The chance of a mortgage application approval gets lower as people grow older.
  • The chances of an approval drop quickly at age 70.
  • The decreasing approval rate is not as severe for older women as for older men. (You guessed it: This correlates with women’s longer life expectancies.)

The Urban Institute found a similar effect in research it published in 2021. In the course of its study, seniors aged 65+ got turned away at a rate significantly higher than younger applicants. And the study noted that the difference would be even more severe if interest rates were to rise — which they did.

Dealing With Mortgage Approval Criteria: A Checklist

So, there really are extrahurdles for senior applicants. What exactly does an older adult have to show a potential lender to clear those hurdles? Older adults have to line up the same documentation anyone else does — but clearly it has to be more robust.

If you’re a senior applying for a mortgage, you’ll need to document your income and assets. Depending on whether you’re working or retired, documentation may include:

  • Paystubs and W-2s.
  • Tax returns.
  • Proof of Social Security and/or disability benefits.
  • Pension statements.
  • Retirement account / other investment income statements.       
  • 1099 forms.
  • Proof of rental property income, though tax returns and lease agreements.

Line up two years’ worth of returns and two months’ worth of financial statements showing regular deposits into your accounts. Any income that isn’t taxed (such as Social Security) can be grossed up to account for your tax exemptions. Your mortgage consultant will walk you through the necessary documentation.

At the End of the Day…

Life expectancy obviously tapers with age, but that’s no big deal to a bank. After a deed holder dies, predictable events follow:

  • A spouse or life partner may arrange to repay the lender and continue to live in the home. In some cases, the surviving partner assumes the loan.
  • Or the personal representative of the estate sells the home off, so the mortgage lender gets paid. 
  • Once the mortgage company and other lienholders are satisfied, the personal representative pays all relevant fees and distributes the proceeds from assets sold out of the estate.  

All this happens when a deed holder dies at any age. Even in the unlikely event that a family member gets the home but doesn’t keep up with the mortgage, the bank has foreclosure as a recovery mechanism.

Nevertheless, expect a lender to take life expectancy into account. Lenders might demand more from an older adult because a shorter life expectancy does have bearing on the bank’s risk. Whatever the stated reasons lenders use when they turn down older adults, just be aware that it’s tougher for these  applicants to get mortgages. This knowledge is significant to us all, as our population gets older.  

Supporting References

Natee Amornsiripanitch for the Center for Retirement Research at Boston College: Are Older Mortgage Applicants More Likely to Be Rejected? (Feb. 14, 2023).

Andrew Dehan and Libby Wells for Bankrate, LLC (part of Red Ventures) via Bankrate.com: Mortgages for Seniors: Getting a Home Loan in Retirement (May 3, 2024).

And as linked.

Photo credits: Ivan Samkov and Mart Production, via Pexels/Canva.