Navigating the complexities of age and mortgage approvals can be a confusing process. While age discrimination is illegal in most cases, there are nuances to consider when it comes to mortgages. This article will delve into the intricacies of age and mortgage applications, providing you with the knowledge to make informed decisions.
Understanding the Law
Age is one of the many criteria on which discrimination is prohibited by the Equal Credit Opportunity Act (ECOA). However, there are exceptions to this rule. If age is a component of a legitimate credit scoring system, lenders may take it into account when determining your creditworthiness. Applicants 62 years of age or older cannot be discriminated against by this system, and it may even favor them.
Age and Creditworthiness
While age itself cannot be used to deny a mortgage, it can be a factor in assessing your overall creditworthiness Lenders may consider your age in relation to your income, employment, and retirement plans For instance, a lender might analyze your job stability and income potential to ensure you can comfortably repay the loan throughout its term.
The Reality of Age and Mortgage Applications
Despite legal protections, research suggests that older applicants may face higher rejection rates for mortgages. A study by the Center for Retirement Research found that the probability of rejection rises with age, with applications for the three oldest age groups being 1-3 percentage points more likely to be rejected than those of younger applicants
Possible Explanations for Higher Rejection Rates
Several factors could contribute to the higher rejection rates for older applicants. One explanation is that older borrowers may have less equity in their homes, making them less attractive to lenders. Additionally, lenders may be concerned about the increased risk of mortality among older borrowers, which could lead to prepayment or foreclosure.
Important Considerations
It’s important to keep in mind that discriminatory practices are not always reflected in the relationship between age and mortgage rejection. In certain situations, lenders have good reason to take age into account, and study findings might not take all pertinent variables into account.
Protecting Yourself
If you’re concerned about age discrimination, there are steps you can take to protect yourself. First, shop around and compare offers from multiple lenders. This will help you identify lenders who are more likely to approve your application based on your overall financial situation, not just your age.
Navigating the world of mortgages can be complex, especially when considering the impact of age. While age discrimination is illegal in most cases, there are nuances to consider. By understanding the law, the factors influencing creditworthiness, and the potential explanations for higher rejection rates, you can make informed decisions and increase your chances of securing a mortgage.
Age is a factor
Amornsiripanitch examined over 5 million rate-and-term refinance mortgage applications, focusing on those submitted by individuals over 50, who make up roughly 40% of refinance applications, to ascertain what role age plays in all of this. Amornsiripanitch found the following: .
- The overall average rejection rate is 17.5 percent.
- Rejection increases with age across the board with lenders.
- Around the age of 70, rejection rates accelerate.
- The age of the applicant has the same bearing on mortgage approval as does race and ethnicity.
- The probability of rejection is lower for women. Amornsiripanitch discovered that mortgage rates rise with age by examining data from Freddie Mac and Fannie Mae. Ultimately, there is an 8 basis point gap in mortgage rates between homebuyers in their 30s and those over 70. (A basis point equals 1/100 of a percentage point. That might not seal the deal, but it does indicate that older adults who are granted a home loan pay more. .
Lenders are prohibited by law from rejecting applicants on the grounds of age, sex, marital status, color, religion, national origin, or race; however, age may be taken into account when calculating credit scores. Lenders, for example, may use an applicant’s age to determine how close they are to retirement and how that will effect their ability to repay
Amornsiripanitch stated that based on the underwriters’ justifications, there’s evidence that a few things are happening, though he was unable to pinpoint a specific cause for why lenders were rejecting more mortgage applications from senior citizens.
%{ description }%
ARTICLE CONTINUES AFTER ADVERTISEMENT
Not enough collateral. A mortgage is a loan secured by real estate as collateral. In some cases, the value of older borrowers’ collateral declined since they took out the original loan. .
Mortality. Lenders fear that elderly borrowers may pay back their loans early or that they will pass away and cause the property to go into foreclosure, which could be expensive for them. Shopping & Groceries.
Save on clothing, gifts, beauty and other everyday shopping needs
In addition to those results, Brian Rugg, chief credit officer at loanDepot, notes that excessive debt-to-income (DTI) ratios are a frequent reason why applicants are denied mortgages, particularly for older adults. Frequently, the loan officer is unaware that the borrower is eligible for the loan rather than the borrower not being able to afford it. When you’re working, lenders look at your pay stubs and use that income to underwrite the mortgage. When you retire, your income sources may include Social Security, a 401(k), an IRA, a pension, and other sources like rent from an investment property. Your loan will probably be denied if the lender doesn’t inquire about that income and you don’t provide the necessary documentation. Rugg cited one instance where an elderly borrower was denied credit because the lender determined the debt-to-income ratio solely based on Social Security income. Once other income was included, the mortgage was approved.
You’ll pay more for a home loan, according to new research
Obtaining a mortgage as you age can be difficult, and when you do get one, you’re apt to pay more, according to research from the Federal Reserve Bank of Philadelphia. That may come as a surprise since older adults tend to have more financial means and higher credit scores than younger borrowers.
“Older applicants for a mortgage refinance generally face higher rejection probabilities. The Federal Reserve Bank of Philadelphia economist Natee Amornsiripanitch wrote, “This empirical pattern is robust within lenders and across loan types.” Moreover, the economist found, older adults who get a mortgage tend to pay more than their younger counterparts.
Get a free second membership, an AARP the Magazine subscription, and immediate access to hundreds of discounts on products that are only available to members.
Why The Bank DENIED Your Mortgage? Common Reason Mortgages Get Declined & How To Avoid Them
FAQ
What is the oldest age you can get a mortgage?
Can you be denied a home loan due to age?
Can a 70 year old qualify for a 30 year mortgage?
At what age will the bank not give you a mortgage?
What if I’ve been denied a mortgage?
The first step is to return to the source. If anyone knows why you’ve been denied a mortgage, it’s going to be your lender. According to the Equal Credit Opportunity Act, lenders are required to tell you why you’ve been turned down, if credit played a role.
Can a lender deny a loan application?
A lender generally can’t deny your loan application or charge you higher interest rates or fees because of your age. This rule applies to various types of lenders when they’re deciding whether to give credit, such as an auto loan, credit card, mortgage, student loan, or small business loan.
Can a lender deny a mortgage?
Lenders can deny your mortgage for many different reasons, but there are also reasons why they can’t deny your mortgage: It’s unlikely a lender would come out and say you’re denied for one of the reasons above. But if you think that likely was the reason for your denial, you can get help from your state Attorney General’s office.
Why do people get denied a mortgage in 2021?
The report also shows that the denial rate of Federal Housing Administration (FHA) loan applications differed from the overall average, at 12.4% in 2021. While credit issues are a common reason why people might be denied a mortgage, they’re not the only reason. Here are a few more that may hamper your efforts to buy a house: 1. Insufficient Credit