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“Federal law, under the Equal Credit Opportunity Act, forbids discrimination in the mortgage market on the basis of age. Nonetheless, loan officers say older borrowers often don’t realize they can get loans with terms that will expire on their 110th, 120th or nearly 130th birthdays.”

A senior loan officer with a mortgage company in Florida recently wrote a 30-year loan for a retiree who was purchasing a home in New Port Rickey. He didn’t expect to have trouble qualifying for the loan, but he was surprised that he did.

That’s because he was 97 years old.

Under the Equal Credit Opportunity Act, federal law forbids discrimination in the mortgage market on the basis of age, reports The Wall Street Journal in a recent article “You’re Never Too Old to Apply for a Mortgage“. However, most seniors don’t know that they can get loans that will expire on their 110th, 120th and even later birthdays. In fact, the Federal Housing Finance Agency says that borrowers over age 65 make up ten percent of all mortgages originated annually.

Some lenders are working harder to find ways to qualify retirees, including rolling out lending programs that allow borrowers to use their investment portfolios to qualify without taking monthly distributions. Loan officers, especially in areas with large numbers of retirees, have become skilled at adding up income streams, helping borrowers establish new ones and willingly guiding them through the process.

The simplest way is for a retiree to add up their monthly fixed income from all sources, which are then treated like a salary by the lenders. If those numbers are not high enough, the next step is to create an ongoing distribution from a retirement account, like an IRA or 401(k). For one mortgage lender, a retired borrower needs to show $8,000 of monthly income for a 30-year home purchase loan. The borrower set up a distribution for that amount from an IRA worth $500,000, and had her financial advisor draft a letter to the lending company about the new income stream. This made her qualified for the loan, even though at that rate, her entire IRA would be drained in five or six years. Fannie Mae rules only require that distributions are guaranteed to continue for three years.

If the property produces income, those funds can be counted towards the qualifying amount. However, the underlying value of the property, even if it is owned outright or if there is a lot of equity in the home, is not considered by the lender. Property tax and homeowner’s insurance are measured as debt in the debt-to-income equation.

If qualifying is still a problem, lenders are increasingly willing to include stocks, bonds, and mutual funds. This is very different than creating a distribution steam that counts as income. The borrower is not required to take a monthly amount from their portfolio. The lender uses a formula called “asset depreciation” or “asset annuitization or depletion” to impute a monthly distribution from the investment portfolio.

Some jumbo lenders who cater to high net worth individuals have more liberal asset depreciation programs. In New York, an 83-year-old retired co-op owner received a $1 million, 10-year, interest only adjustable rate mortgage for a re-finance at a highly competitive rate through a bank’s program similar to an asset depreciation plan. With the deposit of a few hundred thousand dollars into the bank, the owner qualified based on a portfolio of stocks and bonds valued at $1.6 million.

Speak with your estate planning lawyer before making this kind of large financial decision, since it may have a significant impact on your overall estate plan.

Reference: Barron’s (Jan. 16, 2020) “You’re Never Too Old to Apply for a Mortgage

For more information on elder law, retirement planning and estate planning, please visit my estate planning website.

Mr. Amoruso concentrates his practice on Elder Law, Comprehensive Estate Planning, Asset Preservation, Estate Administration and Guardianship.