Seniors may have misconceptions about financing home purchases

Seniors considering a home purchase should check the realities versus their potential misconceptions about the process.

Misconceptions about home-purchase financing can prevent seniors from exploring the best financing options or result in financial decisions that may be less than optimal when buying a home.

Misconception: Age-based lending discrimination is legal.

Reality: Some people believe lenders can reject mortgage applications based on age. The Equal Credit Opportunity Act prohibits age discrimination in lending. Lenders must evaluate creditworthiness based on factors like income, debt and credit history, not age.

Misconception: Seniors can’t get long-term mortgages.

Reality: There’s a misbelief that older borrowers are limited to shorter loan terms or can’t qualify for 30-year mortgages. Lenders focus more on the borrower’s ability to repay during the loan term rather than their age at loan maturity.

Misconception: Retirement income doesn’t count in qualifying for a loan.

Reality: Some believe that Social Security, pensions and retirement account withdrawals aren’t considered valid income sources. These are legitimate income streams that lenders regularly accept, though they may require documentation of sustainability.

Misconception: Reverse mortgages are always the best option.

Reality: While reverse mortgages can be helpful, they’re not automatically the optimal choice for many senior home buyers. Traditional mortgages, cash purchases or other financing methods might be more appropriate depending on an individual’s circumstances.

Misconception: Credit scores matter less for seniors.

Reality: Credit scores are important regardless of age. However, seniors sometimes believe that their long-term credit history is given more weight by lenders than their current credit activity, which might have lower scores. Lenders generally put more weight on recent credit behavior.

Misconception: All-cash offers are better.

Reality: While cash offers can be competitive, depleting retirement savings for a home purchase may not be a wise decision. Maintaining liquidity and potentially leveraging lower interest rates through financing might be more financially sound.

Misconception: Down-payment requirements are higher for seniors.

Reality: Standard down-payment requirements apply to seniors just as they do to younger borrowers, with the same loan programs  and assistance options potentially available.

(National Association of Realtors)