Buying a retirement home at age 60 or over? 5 essential tips for you. | Photo credit: BCCL
Seniors often find it difficult to buy a house. Multiple factors such as a stable job, regular income, high growth potential and more years to retirement work in favor of young borrowers when they apply for a home loan. But most seniors / retirees live on retirement income and on many occasions they barely meet the eligibility criteria for a home loan. In addition, banks and financial institutions normally determine the maximum loan term applicable based on the maturity age of 70 years. This means that if you are 60 years old, a lender can grant a maximum term of only 10 years to pay off your loan. This shorter repayment period forces the borrower to increase the size of the EMI or reduce the loan amount. As such, it is not easy for seniors to get a home loan if they don’t know their limits and are ready to meet the eligibility criteria. If you are a senior and want to buy a home on loan, here are some key points you should keep in mind.
(1) Decide carefully on the LTV
As mentioned above, senior borrowers generally enjoy a shorter repayment period of up to 10 years depending on the age at which they apply for the loan. That’s much shorter than a 30-year maximum term that a 40-year borrower would get ideally. A shorter repayment period increases the size of the EMI. Thus, senior mortgage borrowers should carefully decide on the appropriate loan-to-value ratio (LTV).
A lower LTV ratio means less EMI obligation and increases the chances of getting loan approval from a lender. However, a lower LTV is only possible when the borrower can afford to pay a larger portion of the property’s value from their own sources. In doing so, older people should not compromise on other equally critical financial tasks, such as maintaining an adequate emergency fund. Seniors may also consider choosing a cheaper property to further reduce their EMI burden.
(2) Having a co-applicant can be useful
Seniors generally get a shorter repayment term when they apply for a home loan. Many of them also do not meet the income criteria that a lender may charge. The best way to resolve issues related to meeting eligibility criteria is to add a co-applicant when applying for a home loan. Having a family member as a co-applicant can improve the chances of getting a home loan and it could also help increase the eligibility of the loan amount.
(3) See If You Could Clear Existing Loans Before Applying For A Home Loan
If you are a senior who is considering applying for a home loan, see if you can close your existing loans first if they are about to be completed. When a lender checks a loan seeker’s repayment capacity, they typically reduce their monthly income from their existing EMI obligations. So even if you have two or three IMEs left under your existing loan, they may reduce your loan eligibility to that extent. So, by paying off your outstanding loans, you can improve your mortgage eligibility.
(4) Maintain a good credit rating
Maintaining a good credit rating is essential if you plan to buy a home on loan. Lenders may turn down your mortgage application if your credit score is very low, or you may end up paying much higher interest rates, which could make repayments even more difficult for you. So, if you want to buy a home during your retirement, focus on improving your credit score and maintaining a score above 750.
(5) Prefer a property ready to move in
A property under construction can cost you less, but it can take at least three years from the day construction begins for you to take possession of it. This means that you may have to bear both your home loan IMEs and your rent payments until you get possession. More importantly, any delay in owning a property under construction could seriously complicate matters for any borrower, let alone a senior. So a move-in property might be a better option for you, even if it increases the budget slightly. Additionally, a move-in property is likely to already have neighbors all around and operational amenities by the time a senior family moves in – things that can make their stay more comfortable and safer.
That being said, there are plenty of developers across the country offering senior-friendly properties that have bespoke amenities like yoga centers, jogging trails, house doctors, and more. in addition to being close to leading medical facilities, markets, roads, bus stops, metro stations, etc. – something that older people can consider.
In conclusion, good financial planning could help seniors easily achieve their dream of buying a home despite the challenges. However, they should also keep in mind not to use up their entire retirement corpus to buy a house so that their daily expenses and their ability to effectively cope with any type of emergency are not affected.
Adhil Shetty is a guest contributor. The opinions expressed are personal.