How to get a home loan later in life

They say 50 is the new 40. However, when it comes to getting a home loan, 50 is, well, 50 and that’s something lenders take into consideration if you’re looking to buy property later in life.

Whilst it’s against the law to discriminate against someone on the basis of age, lenders still need to assess your capacity to repay the loan over time, which is known as loan servicing. Joanna Pretty of mortgage lender State Custodians says whilst it can sometimes be a challenge for older customers to secure finance, it’s not out of the question.

“It’s not uncommon for people wanting to seek out a new mortgage later in life due to things like divorce, downsizing, upsizing, or wanting an investment property,” she says. “Give yourself the best chance of being approved according to the lender’s criteria by speaking to them first before applying. They will be able to give you a checklist of what information you need to provide.”

Continuation of income

Firstly, the older you are, the more lenders will want to feel sure that your income and employment will continue for the duration of the loan term without you struggling. You also need to demonstrate a stable income, proof of savings, a good credit history and minimal debt. So, if you’ve partied up a storm in your younger days frittering away the cash and have a financial record that looks more dodgy than decent, it could be tough.

Other assets

Fortunately, lenders are more flexible if older borrowers have other assets of value such as other property, a business, shares or substantial super balance.

Duration of the loan term

If you want to borrow say $250,000 at the age of 60, it stands to reason that the lender may only want to offer you a loan over the period of 10 years, and not 30. Whilst many people are now living well past 80, no one has a crystal ball. Longer loan terms can still be established, however, you’ll have to demonstrate an exit strategy.

What is an exit strategy exactly?

In 2011, the National Consumer Credit Protection Act implemented a law stating borrowers over the age of 50 need to demonstrate an ‘exit strategy’ or plan for what will happen with the loan when they retire. As part of the responsible lending requirements, lenders can’t approve a loan that may be unsuitable down the track.

The exit strategy you need to provide will vary based on your income, assets and retirement plans. Strategy examples may include your potentially selling an investment property or other assets, providing income or payout from superannuation, downsizing the property, or demonstrating investment income or other income that will continue into retirement.

Property decisions you need to consider as an older buyer

It’s always a good idea to assess how you intend to live in a property, regardless of your age, because there are a lot of costs involved in buying and selling. Particularly if you’re already a retiree as these costs will directly impact on your nest egg.

As far as location goes, in my business as a buyer’s agent, if a buyer in their 50s comes to us and is healthy and fit, I wouldn’t be too worried about the necessity of finding them a single level home located close to health services, because most people can live comfortably in the home for 15 to 20 years without being too dependent on these services. But for a client over 60, being close to such amenities is a vital decision that needs to be tabled. We always help our clients “know what they don’t know” and point out factors should their circumstances change.

What is the deal with investment properties?

For older buyers looking for an investment, the issue of how much longer you intend to work is critical in order to maximise capital growth over that period of time. You also need to consider different scenarios. It may be best to take out a 15-year loan instead of a 30-year loan so that the property is fully paid off by retirement. Or you might still take out a 30-year loan and plan to sell another investment in order to pay down the loan on retirement. If you’re set on an early retirement, you may have to look at buying a higher rental yield property, although you need to be fully aware of the risks that come with that.

Why you shouldn’t leave it too late to buy property

There has long been a theory out there that if you haven’t bought your first home by the age of 45 then you never will. Whilst this is not entirely true, there is definitely merit in trying to secure a home sooner than later. One of the reasons a big city like Sydney is largely unaffordable for many first home buyers is that existing homeowners have equity and therefore don’t need to borrow 90 per cent when they upgrade into a bigger home. It’s hard to compete.

Unfortunately for families who leave it a bit late to buy, they're often faced with either buying a place that’s too small for their needs or too far away from their friends and family. Many choose to continue renting. So, whilst it’s not impossible to get into the market later my best advice if you’re younger would be to save the pennies hard and try to get a foot onto the property ladder as best you can.

Veronica Morgan is the principal of Good Deeds Property Buyers, co-host of Location, Location, Location Australia and co-host of The Elephant in the Room property podcast.

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