Senior refinance programs for mortgages, and who qualifies

Whether to take advantage of lower interest rates or to tap into your home equity, you’re never too old to refinance a home loan. Refinancing after retirement can be a challenge for many reasons, but with the right resources, you can find a refinancing program that works well for you.

Let’s take a look at the best refinance programs for seniors and how you can improve your chances of qualifying for a mortgage refinance.

Can seniors refinance a mortgage?

There’s no age limit for getting or refinancing a mortgage. Thanks to the Equal Credit Opportunity Act, seniors have the right to fair and equal treatment from mortgage lenders.

However, when refinancing a home loan, seniors can face certain challenges – particularly with how lenders view retirement income. In addition to meeting a lender’s credit score and debt-to-income ratio (DTI) requirements, seniors may have to provide additional documentation as proof of income. They’ll also need to consider the down payment and closing costs.

We’ll cover additional senior refinancing challenges later on in this article, and we’ll also review what documentation may be required.

Refinance programs for seniors

Whether you want to lower your monthly payment, change your loan term or do both, the following senior refinance programs are available for qualifying homeowners:

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 can swap out a borrower’s current loan for a new loan with preferable terms.

For example, if mortgage rates have recently gone down, a borrower can apply for a rate-and-term refinance to lock in a new lower rate, potentially reducing their monthly payment in the process. A rate-and-term refinance can also be used to shorten a loan term.

Cash-out refinance

By using a cash-out refinance, seniors can both refinance their mortgage and earn some spending money from their home equity. The drawback is that this will increase the amount you owe on your new home loan, likely extending the amount of time you’re paying your loan off.

You could still lock in a lower rate, however, and put the cash from your home’s equity toward home improvements or other expenses.

Government refinance programs for seniors

Qualifying borrowers may also have refinancing options from the Federal Housing Administration (FHA), U.S. Department of Veterans Affairs (VA) and government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.

Offered programs include:

FHA Streamline Refinance

If your current home loan is an FHA loan, you could take advantage of the
FHA Streamline Refinance program for a faster and more simplified refinancing process. A Streamline Refinance can save borrowers time and money by oftentimes skipping the appraisal and bypassing a credit check. Because of how much this can speed up the underwriting process, you can close on your new mortgage sooner than you could with other refinance programs.

VA Interest Rate Reduction Refinance (IRRRL)

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

Fannie Mae And Freddie Mac Refinance Programs

Fannie Mae and Freddie Mac both offer mortgage refinance programs beneficial to those on a lower income, such as Social Security. Two of these programs are Fannie Mae’s RefiNow™ and Freddie Mac’s Refi Possible?, both of which offer various benefits that include looser 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

For seniors who want to finance home improvements as well as get a new mortgage, multiple renovation loans can roll the costs of repairs into a new loan. Notable renovation loan options include:

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

If you’re planning on hunkering down for retirement, it may pay off to invest in some home improvements while you’re refinancing your mortgage. Rocket Mortgage^® does not currently offer renovation loans.

Why is refinancing different for seniors?

So, what makes getting a mortgage different as a senior? It all depends on your motivation and finances.

Here’s everything you should consider before moving forward with a mortgage refinance as a senior:

Your reasons for refinancing

If you’ve lived in your current home for many years or have your mortgage paid off, you might wonder why you’d even want to refinance your home. Does it make sense to go through the entire mortgage process again?

For many seniors, the answer is yes. Reasons vary, but lots of seniors consider refinancing because they:

• Need to access the equity in their home
  
  
• Want to lower their mortgage payments
  
  
• Realize a new mortgage would lower their interest rate
  
  
• Want to change their loan term

Regardless of your motivation for refinancing, you’ll want to make sure your choice makes sense for your financial situation.

Your assets, income and retirement accounts

most lenders like to see evidence of steady, reliable income from borrowers – and if you’re no longer working, it might be difficult for you to show regular cash flow when you apply for a refinance.

Luckily, many mortgage lenders now allow retirees to use income from their retirement assets to qualify for home loans. These assets include:

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

Bonds, Stocks And Mutual Funds

The type of investments you have may impact how mortgage lenders view your total income as a borrower. If you have accounts made up of bonds, stocks or mutual funds, lenders can only consider 70% of the value of those assets due to their volatility, so you may not qualify for as large of a mortgage as you initially thought.

Retirement Accounts

For your retirement accounts to help your application, you’ll need to demonstrate you can draw on these accounts without penalties for the next 3 years to support both normal living expenses and loan payments. You’ll also need to provide extra documentation on top of the standard mortgage paperwork to show you have access to these accounts.

Not retired yet but planning on retiring soon? Since lenders want to see evidence that senior citizens have finances to cover at least the next 3 years (either from their job or retirement accounts), you might be denied if you inform lenders you plan to retire sooner. Where possible, it might be best to wait and apply once you’re fully retired and can access your retirement accounts.

With that said, you aren’t required to report your planned retirement date. If you do plan on retiring soon, just make sure your finances can cover your mortgage payments once your regular income stops.

Your thoughts about the loan term

Can a 70-year-old choose between a 15- and a 30-year mortgage? Absolutely. The Equal Credit Opportunity Act’s protections extend to your mortgage term. Mortgage lenders can’t deny you a specific loan term on the basis of age.

The loan term you’re comfortable with has much more to do with your finances than your age. Many seniors use a 30-year mortgage because of its relatively low monthly payments, but you might decide to use a 15-year or shorter term depending on your intentions for the house.

In most cases, you don’t need to worry about what will happen to your mortgage if you pass away before it’s paid off. Your loved ones can usually sell the house to repay the remainder of your loan, but if you want your family to keep the home, you may want to set up a life estate and put money aside or plan on using insurance to cover the mortgage.

How to apply for a senior refinance program

Just like taking out a new mortgage, refinancing can be a slightly different experience when you’re living on a fixed income. Here’s what you’ll have to do to find the mortgage refinance programs for your needs and your financial goals:

1. Decide why you want to refinance

When you refinance your mortgage loan, you replace your current loan with a new loan. You can refinance to get a lower interest rate, reduce your monthly payment or take cash out to cover debt. A refinance can have a dramatic, positive impact on your finances in both the short and long term.

2. Apply with your mortgage lender of choice

The refinance process begins with an application. You’re under no obligation to use your current lender, and you can submit an application with any lender you choose. Your lender will usually ask you for documentation that proves your income. This documentation can include tax returns, statements detailing your Social Security benefits and any statements from your retirement accounts or pension plans.

3. Get through the underwriting process

During underwriting, your lender will verify your income and make sure you meet the standards for a refinance. Your lender will also likely schedule an appraisal to ensure your home hasn’t decreased in value. After all your paperwork clears and your appraisal comes back, you’ll sign on your new loan at closing.

4. Understand the hurdles

Living on a fixed or low income can make it more difficult to qualify for a refinance. Lenders need to know you have enough money to cover your monthly payments. They also need to know that if you encounter financial hardship, you have enough in savings to continue making your payments. As long as you understand the hurdles you’ll face when applying for senior refinance programs and provide your lender with the necessary documentation, you’ll be in good shape.

Increase your chances of getting approved

Whether you’re refinancing your current home or planning on buying a new one with a new mortgage, you’ll want to maximize your chances of approval before you apply. Here are a few simple ways to increase your chances of approval:

Start with your current lender

You may have an increased chance of getting approved for a refinance with your current lender since they’ll already know the details of your existing loan. Your lender may be able to suggest different senior refinance programs that you’ll easily qualify for, and they may even be able to loosen the requirements to refinance if you’re up to date on your mortgage payments.

Include all your income

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

• Social Security payments
  
  
• Structured settlement payments
  
  
• Dividends from stocks and other investments
  
  
• Alimony payments
  
  
• Military pension payments and benefits
  
  
• Income from rental properties you own
  
  
• Payments from your IRA, 401(k) or other retirement accounts
  
  
• Royalty income from patents

The specific streams of income you can include in your application vary from lender to lender. The most important factor is that the income you have will continue to come in throughout your retirement. Your lender may exclude certain streams of income that aren’t long-standing. For example, your lender probably won’t consider alimony as income if it’s set to end in 12 months.

Maximize your appraisal value

The appraisal process is an important part of refinancing for many borrowers. In many cases, an appraiser will tour your property and give you an estimate of how much your home is worth. Maximizing your appraisal value can increase your chances of qualifying for a refinance. This is especially true if you’re applying for a cash-out refinance.

Use these simple tips to increase your home’s value before your appraisal:

Increase Your Curb Appeal

Your curb appeal has an impact on the value of your home to home buyers. Take a tour of the exterior of your property and see where you can make improvements. Painting fences, planting flowers, and power-washing walkways and hardscaping are some ways to improve your 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 your rooms look larger and make your home feel more comfortable. Take a walk through each room a few days before your appraisal and make sure everything is clean and put away.

Create A List Of Upgrades

Permanent upgrades you’ve made to your home can increase your home's value. Examples of permanent upgrades include installing a home security system, replacing old appliances and adding a pool. Permanent upgrades don’t include removable or aesthetic upgrades like painting a bedroom, putting up wallpaper or hanging mirrors.

The bottom line

Managing loans on a fixed income as a senior citizen can be challenging, but it isn’t impossible. Looking into senior refinance programs can help you save money in the long run. Consider your finances and your long-term goals before moving forward on any particular program. Then, choose one that suits your situation best.

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