Home Financing Options for Those Over 55

Homebuyers who are over 55 and looking to move to more manageable housing or to digs closer to the grandkids need not worry about whether they can qualify for a mortgage.

It is illegal to discriminate against anyone applying for financing because of their age, which is a protected class under the Fair Housing Act. If you have the income, credit profile and the ability to pay back the loan, winning approval should not be a problem just because you are over 55.

Even if you don’t have a full or part-time job, banks are willing to lend if you have regular monthly income, like a pension and Social Security, or retirement assets.

But this begs the question: What kind of financing is available for us old folk? Is it any different from everyone else?

The answer to that second question is no; today’s loan products are the same for everyone. You are eligible for a 30-year mortgage or one for 15 years, or even 10 if you can afford the higher payments. You can have a fixed-rate loan, or for a little lower rate, one in which the rate changes every so many years, every three, perhaps, or even every five, seven or 10 years.

As it turns out, though, seniors have options youngsters don’t have, including a 1) Home Equity Conversion Mortgage for Purchase (HECM), 2) a bridge loan or 3) a Home Equity Line of Credit (HELOC).

1. Home Equity Conversion Mortgage for Purchase (HECM)

One is a reverse mortgage, or more specifically, a Home Equity Conversion Mortgage for Purchase (HECM), a government-insured loan offered by just a handful of national specialty lenders. A HECM isn’t cheap — and there are lots of hoops. But if you need the money from the sale of your current home to close on the new place — and the old one hasn’t found a buyer yet — it is worth considering.

The beauty of a reverse mortgage is that the bank pays you; you don’t pay the bank. A for-purchase reverse mortgage work like this:

Say you are buying a $300,000 house. Instead of using your cash reserves, you take out a reverse mortgage for an amount based on you and your spouse’s longevity and the value of the property you are buying. The proceeds of that loan, plus your cash down payment is enough to cover the entire cost, and you are in with no mortgage payment.

In other words, you ante up the down payment and finance the rest with a for-purchase HECM. Then, when your current house sells, you can use that money to replenish your bank account and either pay off the loan and stash the balance in the bank or with your stockbroker.

The major caveats: You and your spouse must be at least 62 years of age, you must continue to pay your own insurance and property taxes and paying the loan off early could prove to be expensive.

2. Bridge Loans

Another alternative for people who still have a house to sell is a bridge loan. Exactly as the name suggests, this type of financing creates a bridge between the old house and the new one.

Bridge loans, or temporary financing until your old house is sold, aren’t as easy to come by as they used to be, but some lenders still offer them. For example, Hurst Lending and Insurance of Dallas makes them, but only in Texas — not in Colorado or Florida, where it also does business — reports co-founder Jay Hurst.

“Understanding the value of the property is important and we don’t have that expertise elsewhere,” Hurst explains.

Sometimes known as gap financing, bridge loans are secured to your existing house, with the funds used as a down payment for the new place. The loan may or may not require payments, at least for a few months. And when the old house is sold, the loan is paid off, and the rest of the proceeds from the sale can be applied to the new house,

The main drawback with a bridge loan, according to Elizabeth Weintraub of Lyon Real Estate in Sacramento, Calif., is that the lender on the new house, if there is one, will qualify you as if you own two houses. Consequently, it will be more difficult to gain approval.

If money for a down payment is the issue, consider refinancing the old house and use the proceeds to put a healthy down payment on the new house. Then, when you sell the old place, you can pay off that loan and use the rest of the money as you see fit — to put into the new house, for example, or make other investments.

Third Federal Savings and Loan, a major residential mortgage lender in the Midwest as well as several Southern states, says its bridge loan volume has jumped 137 percent in the last year, thanks in part to a new feature designed to lift the burden of two house payments, one for the old place until that house is sold and another for the new home.

With Third Federal’s bridge loan, the payment on the existing house is deferred for up to 12 months or until it is sold, whichever comes first. The institution requires no special application and there is no cancellation or prepayment fees.

“With many markets facing low housing inventory, borrowers who are interested in buying a home need to act fast to have their bid accepted,” said Third Federal Chairman and CEO Marc A. Stefanski. “By taking advantage of our bridge loan, borrowers who already own a home can eliminate a barrier to buying their next home and better compete in low inventory markets.”

3. Home Equity Line of Credit (HELOC)

Another possibility: Take out a home equity line of credit, or HELOC, on your current residence and use some of that money for your down payment. Then, when your place sells, pay off the HELOC and go from there.

Contingency Clauses

If new financing is not your cup of tea — many seniors don’t want new mortgages hanging over their heads — you will find that most builders will accept contingency clauses in their contracts. This makes the purchase of the new place dependent upon the sale of the old place. But builders won’t wait forever for your house to sell. So, if it doesn’t sell within a reasonable amount of time, you could lose the lot you picked or, worse, the deal altogether.

Del Webb’s Sun City Festival in Buckeye, Ariz., will gladly take a buyer whose purchase is contingent on selling his current residence, says salesman Ken Plonski. The clause will give a buyer 60 or sometimes 90 days to complete the sale of the old place. And if he can’t, says Plonski “he gets his earnest money back, so it’s really a no-risk situation.”

Of course, the builder won’t start construction on the new place until the old house is sold or the contingency is removed. But since it normally takes five to six months for Del Webb to deliver a house in this desert community outside of Phoenix, a buyer who still hasn’t sold his old place can still have 180 more days to find a buyer if he decides to go ahead when his contingency expires.

For most builders, you and the builder are in this together. For example, at Traditions of America, which has 55-and-over communities in Pennsylvania, New Jersey and Delaware, buyers with a house to sell can partake of the professional resale management services through Traditions Realty, no matter where that house is located.

Traditions will set you up with a top local agent and resale management team who will recommend a selling price and show you how to stage your house to achieve that price in the fastest time. On top of that, company’s Home Assist program offers up to $10,000 in value protection if the place ends up selling for less than that value.