Are you ever too old to apply for a mortgage loan? The legal answer is a definite "no." But the realistic answer is complicated.

Consider this example: You've searched for years, but you've finally found your dream home in your dream community. Problem is, you need a mortgage loan to finance the purchase of this residence. You're retired, and your 70th birthday is just around the corner.

Can you? And should you?

Can you qualify for a mortgage loan? And, more importantly, does taking on such a huge debt after retirement make financial sense?

The answer to the first question depends on your income and debts. Mortgage lenders can't deny your application for a loan because of your age. If you can prove that you can afford a monthly mortgage payment and you have a solid credit score, lenders will approve your application.

The more difficult question is the second one: Even if you can qualify for a mortgage loan in your 60s or even in your 70s, should you take on the financial burden of monthly home-loan payments at such a late stage in your life?

It's a question without an easy answer. Jeremy Heck, a consumer law attorney at Columbus, Ohio's Luftman, Heck & Associates, often works with clients struggling with financial challenges. He says that seniors should think carefully before applying for a new mortgage loan.

Managing expenses

"Overall, I don't think taking on mortgage debt at such an advanced age is such a good idea," Heck said. "Many seniors are on a fixed income. What if something happens and they can no longer afford their monthly mortgage payments? What if their property taxes go up and that makes their mortgage payments unaffordable? Seniors should not put themselves in a position in which they might have to worry about making their mortgage payments."

That's not to say that Heck says it never makes sense for seniors to take on a new mortgage loan. Like all homeowners, they might choose to refinance an existing mortgage loan to one with a lower interest rate and, therefore, lower monthly payments. That can help seniors on a fixed income reduce their monthly expenses. Even if they extend the life of their loan through a refinance, the monthly savings might be enough to make such a move financially sound.

Then there's the issue of credit card debt. Heck says that it might make sense for seniors to apply for a cash-out refinance that gives them a lump sum of cash to pay down credit card debt that comes with sky-high interest rates. After all, their new mortgage debt will certainly come with lower interest rates. But there is a risk with this move, too, Heck said.

"You have to consider that you are taking unsecured credit card debt and turning it into secured debt, debt that is secured with your house," Heck said. "If you can't make your monthly payments, the bank could take your home. If you do understand this, and if you can afford the monthly payments, such a move could make sense."

Downsizing with a mortgage

Other seniors might want to downsize from a large home to a smaller one that is easier to care for. Depending on when these seniors bought their existing home, they might not be able to sell it for enough to cover the mortgage on a smaller residence. In such cases, they might have no choice but to take on a new mortgage loan, even if they are in their 60s or 70s.

Ron Weiner, a certified financial planner and president at RDM Financial Group in Westport, Conn., said that some seniors let emotions cloud their judgment. They like their homes too much, and they don't want to sell them. They hang onto them even when a better financial choice is to sell a large home with high property taxes.

"They might have a house with five bedrooms and they're empty nesters," Weiner said. "From a pragmatic point of view it makes sense to downsize and move into a smaller home that's easier to care for. This has to be a hard-nosed business decision. You have to discuss all the aspects of this decision, even those that are emotional and difficult."

Qualifying

 

If you decide that applying for a new mortgage loan - whether to purchase a residence or a refinance to replace an existing home loan - makes financial sense, here's what you need to qualify.

First, you'll need enough income coming in each month. Lenders today generally want your monthly debts - including your new mortgage payment - to equal no more than 43 percent of your gross monthly income.

Most people rely on their jobs for the majority of their monthly income. If you're retired, you can't do that. You can, though, use other sources of income. This can include Social Security payments, royalties, rental income from apartments you own, pension payments or the capital gains you receive from investments.

You'll also need a solid credit score. Most lenders consider a FICO credit score of 740 or higher to be an excellent one. If your FICO score is under 640, you'll struggle to qualify for a mortgage loan at an affordable interest rate.

But if your income and credit score are high enough, you should be able to qualify for a mortgage loan no matter how old you are. The federal Equal Credit Opportunity Act states that it is illegal for lenders to discriminate against borrowers because of their age.

Long-term planning

Again, you'll have to determine if taking on mortgage debt at an advanced age makes sense. If you die before paying off your mortgage loan, the bank might have to sell your home to generate enough funds to pay off your debt. This means that you won't be able to leave your home to your heirs unless they are willing and able to pay off your mortgage debt themselves.

You might state in your will that your home does pass on to your children. Again, though, if you die with a mortgage loan and the funds in your estate aren't enough to pay it off, your beneficiaries might not be able to pay off that loan and take ownership of your home. Your bank might have to sell it on its own.

If you do take on a mortgage after you retire? Know that you are not alone. The number of older Americans still paying off mortgages is not shrinking. In 2014, the Consumer Financial Protection Bureau studied the issue, finding that the percentage of homeowners 65 and older still paying off home loans rose from 22 percent to 30 percent from 2001 through 2011.

The Consumer Financial Protection Bureau found, too, that from 2001 through 2011 the median balance on the mortgage loans held by those 65 and older jumped from $43,400 to $79,000.

This seems to indicate one thing: A growing number of seniors will have to deal with mortgage payments long into their lives. You'll have to decide whether voluntarily doing this makes financial sense for you.

"You need to make a clear analysis of your cash flow," Weiner said. "You have to look at what you tax bracket is and understand what future needs might come up. You can't just jump into this decision because someone tells you it's a good idea."

Published on February 2, 2015