Mortgage Rejection Rates Spike as You Age

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 are worried older borrowers may repay the loan early, or that they will die and the property go into foreclosure, which can be costly to the lender. ​

In addition to those findings, too high a debt-to-income (DTI) ratio is a common reason borrowers are turned down for a mortgage, more so for older adults, says Brian Rugg, chief credit officer at loanDepot. Often it’s not because the borrower can’t afford the loan, it’s that the loan officer doesn’t know he or she can. When you’re working, lenders look at your pay stubs and use that income to underwrite the mortgage. Once you’re retired, cash flow may come from a pension, 401(k), IRA, Social Security and other income such as rent from an investment property. If the lender doesn’t ask about that income and you don’t offer the information, your loan is likely to be rejected. Rugg pointed to one case in which an older adult got turned down because the lender used only Social Security income to calculate the DTI ratio. Once other income was included, the mortgage was approved. 

What you can do

To secure a mortgage at a reasonable rate, retirees have to be forthcoming about their finances and lenders have to be well-steeped in the needs of older borrowers. If the lender you’re working with isn’t asking the right questions and taking pains to understand your financial situation, you should move on. “If you’re not comfortable with the level of acumen the lender has about your situation and you aren’t overturning every rock, you might miss out on the opportunity to get a loan that is advantageous to you in retirement,” Rugg says. ​

Comparison shopping is important. Amornsiripanitch found the 8-basis-point increase in rejection rates may be due to the borrower not doing the research. That could be driven by physical or mental fatigue, as well as an aversion to technology. “It’s easier to get a lot of different quotes on an app or on the internet,” says Anqi Chen, senior research economist and the assistant director of savings research at the Center for Retirement Research at Boston College. “Older Americans may not be as familiar and are not using some of these new technologies to shop around for mortgages.” If you don’t have access to the internet, comparison shop via phone. Start with your existing lender, then check out the rates at a credit union, bank and other mortgage providers to get the best rate.