Senior Refinance Programs For Mortgages And Who Qualifies

Refinancing a mortgage at age 65 or over can be challenging, especially for homeowners on fixed or retirement incomes. Fortunately, you can benefit from available resources to help clear certain hurdles and qualify for refinancing.

We’ve compiled a list of the best refinance programs for seniors and offer advice on improving your chances of qualifying for a mortgage refinance.

Refinancing a home loan can be more challenging for older adults because many commonly live on fixed or retirement income, and lenders assess retirement income differently from traditional employment income. Borrowers will likely need to provide additional proof of income while meeting a lender’s credit score and debt-to-income ratio (DTI) requirements and make or save enough to cover closing costs.

Whether you want to lower your monthly payment, change your loan term or both, there are senior refinance programs that can make it easier to qualify.

Rate-And-Term Refinance

One option to consider is a rate-and-term refinance, sometimes called a “Rato” program for seniors. This is the most traditional form of refinancing, where a lender swaps out a borrower’s current loan for a new loan with preferable terms.

For example, borrowers who want to take advantage of mortgage rates dropping can apply for a rate-and-term refinance to lock a new, lower rate and potentially reduce their monthly mortgage payment or adjust their loan repayment term.

Cash-Out Refinance

With a cash-out refinance, homeowners can refinance their mortgage by tapping into their home equity and accessing some of it as cash. You receive a lump sum in exchange for a new, larger mortgage, which will increase the amount you owe on the new loan and likely extend the time it takes to pay off your new loan.

You can still lock a lower rate and put the cash to any use, such as making home improvements or paying off other expenses.

Qualifying borrowers may be able to refinance through the Federal Housing Administration (FHA), Department of Veterans Affairs (VA) or Fannie Mae and Freddie Mac, the government-sponsored enterprises (GSEs).

Let’s explore how you might use one of these programs to qualify for a refinance.

FHA Streamline Refinance

If you have an FHA mortgage loan, you can benefit from the speedy and simplified refinancing process an FHA Streamline Refinance provides. Some homeowners can skip the home appraisal and bypass the credit check. Because of the program’s speedy underwriting process, you can close on your new mortgage sooner than with other refinance programs.

VA Interest Rate Reduction Refinance (IRRRL)

Like an FHA Streamline Refinance, qualifying active-duty service members, veterans and surviving spouses can refinance through the VA IRRRL program. Your current mortgage must be a VA loan, and you must secure better loan terms through the refinance, like a lower rate or monthly payment.

Fannie Mae And Freddie Mac Refinance Programs

Fannie Mae and Freddie Mac offer mortgage refinance programs that can benefit low-income borrowers. Fannie Mae’s RefiNow™ and Freddie Mac’s Refi Possible℠ provide various benefits, including more flexible home equity and DTI requirements for borrowers.

You can also refinance with Fannie Mae’s HomeReady program, which offers low down payment and mortgage insurance options.

Renovation Refinance

Borrowers who need money to finance home improvements and get a new mortgage can choose from various renovation loan types to roll the cost of repairs into a new loan. Notable renovation loan options include:

• Fannie Mae’s HomeStyle Renovation
• Freddie Mac’s CHOICERenovation^® loan
• FHA 203(k) loans
• VA renovation loan

If you plan on spending more time at home after retiring, investing in some home improvements while refinancing your mortgage may be worthwhile.

Please note that Rocket Mortgage^® doesn’t currently offer renovation loans.

Lenders typically require proof of steady, reliable income from borrowers when they apply for a refinance. If you’re no longer working, it may be difficult for you to show consistent cash flow.

However, many mortgage lenders allow retirees to use their retirement assets to qualify for a refinance. These assets include:

• 401(k) plans
• IRAs
• Social Security
• Pensions
• Investment accounts

Lenders will also review your investments and retirement accounts to determine whether you satisfy the loan’s income requirement.

Special Considerations For Retirement Accounts

For your retirement accounts to qualify as income, you must demonstrate that you can draw from the accounts for the next 3 years without triggering penalties and have enough cash to support your existing expenses and loan payments. Your lender will likely require you to provide extra documentation to prove your access to your retirement accounts.

If you plan on retiring soon, lenders will require evidence that you have enough funds from your job or retirement accounts to cover your expenses for at least the next 3 years. If you can, consider applying for a refinance after retirement when you can access your retirement accounts. Otherwise, your lender may deny the application.

While you aren’t required to report your planned retirement date to your lender, if you plan on retiring soon, make sure your finances can cover all your expenses, including your new mortgage payments.

Special Considerations For Bonds, Stocks And Mutual Funds

The type of investments you have may impact how mortgage lenders view your total income. If you have bonds, stocks or mutual funds in your retirement accounts, most lenders will only consider 70% of their value due to the volatility of these assets. This may affect your ability to qualify for a refinance since lenders may only consider a portion of your assets’ value.

Considerations For The Loan Term

The Equal Credit Opportunity Act ensures mortgage lenders can’t deny a requested loan term based on age. This protection allows you to select a mortgage loan term that suits your financial needs and goals.

Understandably, you may worry about what happens to your mortgage after you die. You can plan ahead by setting up a life estate and putting money aside or using insurance to cover the mortgage.

Whether you’re refinancing your current home or planning on buying a new one, try to maximize your chances of approval before you apply. Let’s review a few simple ways to strengthen your application.

Start With Your Current Lender

You may increase your chance of approval for a refinance by working with your current lender because they’re familiar with the details of your existing loan. Your lender may be able to suggest different rate and term options for seniors, or they may relax their refinance requirements if you’re up to date on your mortgage payments.

Include All Your Income

Your lender will ask questions about your income and assets when you apply for a new mortgage or a mortgage refinance. However, lenders don’t only consider employment income when they review applications. Maximize your chances of approval by listing all your income streams on your application. Some sources of income your lender may consider include:

• Social Security payments
• Structured settlement payments
• Dividends from stocks and other investments
• Alimony payments
• Military pension payments and benefits
• Rental property income
• Retirement account payments
• Royalty income from patents

Lenders’ guidelines on acceptable streams of income will vary. Your lender may exclude streams of income that aren’t long-standing. For example, your lender probably won’t consider alimony payments scheduled to end in 12 months. What’s most important is to prove that the source of income will continue throughout retirement.

Maximize Your Appraisal Value

The appraisal process is an important part of refinancing. Typically, an appraiser will tour and examine your property to estimate how much your home is worth. Maximizing your appraisal value can increase your chances of qualifying for a refinance, especially when it’s a cash-out refinance.

Use these tips to help boost your home’s value before your appraisal:

Increase Your Curb Appeal

Curb appeal can make a positive impact on prospective home buyers. Tour the outside of your property to see where you can make improvements. Painting fences, planting flowers and power washing walkways are some ways to elevate a home’s curb appeal.

Declutter

Your appraiser won’t deduct points if you haven’t done the dishes or have a few books sitting around. However, decluttering your home can make rooms appear larger and make your home feel more comfortable. A few days before your appraisal, walk through each room and make sure everything is clean and organized.

Make A List Of Upgrades

Permanent home upgrades – such as installing a home security system, replacing old appliances and updating bathrooms or the kitchen – can increase your home's value. Permanent upgrades don’t include aesthetic upgrades, such as painting a bedroom or hanging wallpaper or mirrors.

Managing loans on a fixed or retirement income can be challenging, but it isn’t impossible. Look into senior refinance programs to help you save money on your mortgage loan. Consider your finances and long-term goals before deciding which program best suits your needs.

To explore your refinancing options with Rocket Mortgage, start an application today.