Research shows why older adults face a higher rate of mortgage denials

Income, assets and insufficient collateral factor can into mortgage denials for older Americans

Older Americans tend to have higher credit scores, but other factors can lead to denying an older client a mortgage loan, according to an analysis of the trend by MoneyWise.

According to the data, refinance rejection rates average 17.5% — regardless of a borrower’s age. But when looking at data for applicants in their 60s, the rate increases to more than 19%. For applicants in their 70s, the denial rate increases to 20%.

Lenders typically want a credit score of 620 or above as part of a mortgage loan approval. Baby boomers have an average credit score of 742, according to data from Experian — but older adults also tend to have issues with regular income and asset holdings.

“If you’re retired or close to retirement, your income may be lower than it was when you were working full time,” said Shashank Shekhar, CEO of InstaMortgage. “This can make it more difficult to qualify for a mortgage.”

Economist Natee Amornsiripanitch said that “insufficient collateral” could account for as much as 50-70% of the mortgage application rejections.

Older Americans may also have issues with equity, including whether the home that will be leveraged has been sufficiently maintained over the years. Seniors carrying mortgage debt into retirement could also be a factor in the new loan denials.

Interestingly, Urban Institute research published in October 2021 showed that the likelihood of denial for a Home Equity Conversion Mortgage (HECM) increases if the applicant is on the younger side of the program’s age requirement.

Still, older adults seeking mortgages have options to explore, according to Chris Birk, VP of mortgage insight and education for Veterans United Home Loans.

“One tip is to look for lenders that understand the nuances of retirement-age income, which isn’t a one-size-fits-all calculation,” Birk told MoneyWise.

Shekhar, on the other hand, recommends finding a co-borrower or co-signer with higher income to get over the qualification hump, or considering a reverse mortgage, since it is specifically designed to be used by older Americans.

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