This article is reprinted by permission from NextAvenue.org.
I wanted to buy a house of my own.
After several years filled with changes in location, finances, relationships, and goals, I was ready to settle down, stop renting, and buy a place. I just wanted to buy something simple, in reasonable shape, but at a price I could comfortably manage. That meant that I needed to obtain a mortgage.
As a “solo aging” self-employed 63-year-old, I wasn’t sure if I could pull it off. The pandemic had altered the real estate universe, resulting in higher prices and shrinking inventory. Still, I felt it was the right time for me — I had a good credit score, money available for a down payment, and my debt load was very low.
So I began by making a list of things I desired in a home. I also determined a monthly payment range I could comfortably manage. The next step was to find out how much I could borrow.
Applying for a loan can be both confusing and intimidating. I had an idea of what I wanted in a house, but I didn’t know whether I would qualify for a mortgage or how much I could afford to borrow. So the first thing I needed to do was to contact a loan company.
“The key with any borrower is preparation and planning,” says Valerie Saunders, executive board member of the National Association of Mortgage Brokers. “Speaking to a mortgage broker in their area early in the process can be very beneficial in providing them with the financing options available, amount of down payment necessary, documentation required to be provided as part of the approval process and more.”
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Prequalification or preapproval?
I found that organizing my finances ahead of time helped me stay positive and focused. Then I was faced with a decision: should I apply for a prequalification or preapproval?
“A prequalification means that the mortgage broker or mortgage lender has reviewed the financial information you have provided and believes you will qualify for a loan,” says Saunders. “The estimated amount of the loan is based on the income provided and debt reflected as part of a credit report. This estimate is subject to change based on final confirmation of the information provided.”
I decided to apply for a preapproval, as I was sure I wanted to move forward with a mortgage once I found the right house. A preapproval is a more formal offer letter that only mortgage lenders can provide; it may affect your credit score but still is not a commitment by the lender for a specific amount.
“The borrower will complete a mortgage application and the lender will verify the information provided including creditworthiness,” says Saunders.
Lenders look for a number of factors when you apply for a preapproval or a mortgage, such as:
Your credit history
Your FICO credit score
Your debt-to-income ratio
Your sources of income
According to a survey by the National Association of Realtors, 61% of home buyers use their savings as a source for their down payment, and 56% use the proceeds from another home sale to fund the down payment. I planned to use the money from an equity fund to pay for the down payment on my future house.
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Dig out these documents
Because I am a freelance writer and sole proprietor, I was also required to submit a recent profit and loss statement and other proof of income. Other documents requested from the loan officer included:
Copies of the last two years of my tax returns
Three months of bank statements
Statements from IRAs, equity funds, etc.
Divorce decree (to prove any asset allocations from the divorce)
I had organized most of those items ahead of time, but I still had to search for a few things. It took nearly a full workday to pull together all my paperwork, copy bank statements, and then scan and send documents.
All of this paperwork was submitted through a secure portal provided by the loan company. Then, I had a phone conversation with the loan officer, repeated much of what I had already submitted and answered questions about my financial health and whether I had a loan amount in mind.
Then you worry and…wait
I fully expected to wait a few days for an answer, and wondered if I would qualify for a loan sufficient to let me buy a home in a condition good enough to let me move in right away. Would they approve my application, even though my income varied from month to month? Would I be starting over with a fixer upper, using only the cash from the equity fund?
Surprisingly, the answer came the next morning.
The amount I could borrow was enough to purchase a home in reasonably good condition, and I felt comfortable with the estimated monthly payment on the 30-year fixed-rate loan. I did a happy dance as I printed out the loan preapproval.
Conventional mortgages like the one I have are not the only option for older buyers. If you are 62 years of age or older, for example, you may qualify for a Reverse Mortgage for Purchase loan using loan proceeds from a Home Equity Conversion Mortgage.
This Housing and Urban Development loan allows you to obtain a reverse mortgage and purchase a new home in a single transaction, says Saunders. However, you still have to come up with the down payment, and the amount might be higher than for a standard single-family-home purchase. You will be responsible for homeowner’s insurance and property taxes but would not have to pay toward the principal balance of the loan.
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Next up: find a home
The NAR survey found that on average buyers search for eight weeks before finding a home. With very little inventory in my area and in my price range, I expected my search to last at least through the summer. I went to the multiple listing service in my region to view homes that were currently listed and active in my area. Although the loan company was affiliated with a few real-estate agents in my area, I chose to go with another agent for various reasons.
Some Realtors train to be Seniors Real Estate Specialists (SRES) “to be able to meet the special needs of maturing Americans when selling, buying, relocating or refinancing residential or investment properties,” according to the National Association of Realtors website.
“I’ve worked with many older adults who are moving to be near family or are moving to a home that provides the care they now need due to changes in health,” says Barb Trousdale, SRES agent and owner/broker of Preferred Properties in Williston, Vermont. “There is a misconception that older adults cannot obtain a mortgage. Lenders offer mortgages to buyers of any age if they have the good credit and the income to support the payments.”
SRES–designated agents have completed continuing education courses to better understand issues that older homeowners face, such as reverse mortgages, selling a family home, and government programs that may aid or impact a sale or purchase.
2020 Consumer Housing Trends Report found that 42% of buyers did not succeed in having their first offer accepted. But in my case, the stars aligned — I made an offer (several thousand dollars above asking price) on the second house I viewed, and it was accepted.
I am now working through the loan process and anticipating a closing date in a few weeks. As a solo ager and freelancer, I discovered that home buying is indeed possible.
Rosie Wolf Williams is a freelance writer whose work has appeared in USA Weekend, Woman’s Day, AARP the Magazine and elsewhere.
This article is reprinted by permission from NextAvenue.org, © 2022 Twin Cities Public Television, Inc. All rights reserved.
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How to Buy a Home in Retirement
The 7 Biggest Mistakes Buying a Retirement Dream Home