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Who Says Retirees Can’t Get a Home Loan?

| July 17, 2012

AgeNation - Seniors can get a mortgage

Looking for ways to preserve your net worth? Want to buy a home in your retirement destination but your current home is on the market? Like to take advantage of the current low interest rates but don’t think you can qualify? Read on for good news!

Shorten the length of your loan
Mortgage banks are busy with wise homeowners refinancing their homes from 30 year fixed-rate loans to 20, 15 and 10 year fixed-rate loans. Why? With interest rates at all-time lows, this is the perfect time to move to a shorter mortgage and own your home Free and Clear. But how do you qualify, especially when you are retired or close to retirement?

Lenders get it. If you’re shortening the length of your loan, it shows great prudence and savvy money management. Here’s an example:

Let’s say you have a 30 year fixed-rate loan at 4.875% with an original amount of $250,000. You pay approximately $ 1323 a month in principal and interest. Assume you have 28.5 years left to pay. Now multiply that monthly payment x 12 months x 28.5 years. You will pay about $452,466 over the next 28.5 years. Good golly! That’s over $200,000 more than the amount you borrowed.

Now look what happens if you take a new loan with a shorter term. Let’s take that loan amount and roll modest closing costs (title, processing and appraisal) into a new loan at $252,000.*

If you move to a 20 year fixed-rate loan at 4.25% (APR 4.4%) you’ll have a monthly payment of
$1560. You’ll pay about $374,513 over 20 years. It’s still a lot of money but look at the savings: $452,466 minus $374,513 = a savings of $77,953. WOW!
If you move to a 15 year fixed-rate loan at 3.75% (APR 3.94%) you’ll have a monthly payment of
$1832. You’ll pay about $329,760 over 15 years. And your savings? $452,466 minus $329,760 =
a savings of $122,706. Wowee!
If you move to a 10 year fixed-rate loan at 3.25% (APR 3.44%) your monthly payment will be
$2462. Yes, that may look steep. But consider this: You’ll pay about $295,440 over 10 years
and save an incredible $ 157,026. Wowee-Zowee! (Pardon my enthusiasm, but that’s a LOT of
money!)

Close to retirement or retired, this is a great strategy to preserve your net worth. By shortening the length of your loan you can own your home Free and Clear and keep the money for yourself. Wouldn’t that give you peace of mind?

Can I really get a loan?
What about those rumors that you can’t get a loan if you’re retired or close to it? Not true. Lending has gone back the basics. The bottom line is this: Show your tax returns and prove your income. If you’re retired and taking a modest income from a pension and/or Social Security, and not tapping your personal retirement funds, you can probably still qualify. If you choose to refinance to pay off your home faster, you might be asked to begin taking retirement distributions or increase your current distributions to qualify for your new home loan payment.

Common Sense Lending
Retirees relocating to their dream retirement destinations can get approved, too, even if their existing home hasn’t sold. How? Most retirees take only the minimum income they need from their retirement funds, so perhaps you assume that your current income would not qualify you for a new home loan, BUT you have $400,000 saved up for retirement. Common sense says you could pay cash for this home, so a Common Sense loan makes sense for you. Begin taking distributions from your retirement plan so you qualify for that home purchase. When your old home sells, pay down the principal on your new home with the proceeds of the sale. Then ask your bank to “re-set” your monthly payment so it is based on your new paid down loan amount. You can do this without having to refinance!

Enjoy your retirement
Use these strategies to free up more money for what you want to do, instead sending it to the bank every month. Just by shortening the length of your loan you can save $77k – $122k – $157k. If you qualify for a Common Sense loan, you can move to your retirement destination now instead of waiting for your house to sell.

After all, what could be better than owning your home Free and Clear in the location of your dreams?

*Principal amount of $252,000 assumes closing costs (title, processing, appraisal) rolled into new loan amount. This is not a commitment to lend. All rates, fees and loan terms subject to a formal loan application, credit risk and appraisal evaluation, and other lending criteria.
Programs, rates, terms and conditions are subject to change without notice. Other restrictions may apply.

Francis Phillips - AgeNation Financial ExpertFrancis Phillips is Branch Manager at Residential Home Funding Corp. in Santa Fe NM. With over 25 years of professional mortgage banking and investment experience, Francis is a nationally recognized leader in the mortgage industry. He takes a financial planning approach to lending, recognizing that each client’s needs are unique. This highly successful approach has won him many awards including Branch Manager of the Year and Loan Officer of the Year. He and his branch have been featured in Forbes, Southwest Airlines’ Spirit, Mortgage Originator and Broker magazines. His love for business stems from his passion for helping people. He and his team donate $50 from every loan closed to Santa Fe Habitat for Humanity, raising enough money to build three homes for New Mexico families and working towards their fourth. Contact him at fphillips@rhfunding.com.

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Category: Finance/Money

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