Ben Todd | Apr 16, 2017 | 3
Loans For Senior Citizens: The Safe Guide To Getting The Right Loan
Seniors are often faced with finance troubles, as living on their fixed income doesn’t always cover all the expenses that seniors face. Seniors are also sometimes faced with difficulties keeping up on their mortgage payments, now that they are in retirement with a fixed income.
This article will explain and detail the proper loans to receive based on their financial situation.
While reading about the various loans, keep your personal situation in mind, and find one that best fits your needs. Contact your financial institution to inquire about the loans you are interested in.
Mortgage Loans / Home Loans
This list deals with your mortgage loan options. Keep in mind there is no specific ‘mortgage loans for seniors’ program — so these are the general programs that are available to everyone.
The Reverse Mortgage Loan
Many seniors find themselves in a difficult situation when it comes to their mortgage. Now that they are living of a fixed income in retirement, they are having trouble covering their mortgage payments, and if they do cover the payments, they will be short on funds for other living expenses.
This is where a reverse mortgage comes in hand for senior homeowners. A reverse mortgage allows the homeowner to borrow money against the value of their home. This comes in the form of a lump sum, or in monthly payments. As a result the senior does not repay the mortgage until they pass away or move out. After this the home will go to the lender as the form of repayment, or the heirs of the senior citizen can pay off the loan and own the house.
Basically what this means for this homeowner is, it allows the seniors to collect money from the lender in the form of a lump sum or monthly payments, hence the word reverse, as you are now receiving the payments, instead of making the payments.
Keep in mind, interest rates can be higher on a reverse mortgage then a traditional mortgage. They can sometimes be 2% to 5% higher then traditional mortgages. Also, there are fees involved with a reverse mortgage that can range anywhere from $1000 to $4000. Some of these fees can include:
- set fees charges by the mortgage issuers
- the assessment of the homes value
- assorted legal fees
The benefits of a reverse mortgage include:
- the homeowners do not have to worry about paying any cash back as long as the are living in the home
- usually, the money received from the reverse mortgage is not taxed
- many time there are no set medical, or income requirements needed from the homeowner
Now that you are receiving payments, you can use those funds to do various things such as:
- supplement the homeowners retirement income
- make home improvements
- pay any healthcare expenses
- pay any other bills
There are a few different variations of reverse mortgages available such as:
- single purpose reverse mortgage
- federally insured reverse mortgage
- proprietary reverse mortgages
Single Purpose Reverse Mortgage
This tool allows seniors to retrieve some of the equity from their homes, which has to be approved by a lender. These mortgages are available through some state and local government agencies, however they are not available in all states.
This type of mortgage is ideal if you have a large expense and have no other ways to pay for it, therefore a portion of the equity from the home is used.
Federally Insured Reverse Mortgage
This mortgage is insured by the Federal Housing Administration (FHA) which allows homeowners that ability to convert the entire equity from their home to cash. This is the same as a normal reverse mortgage except for the fact that it is insured by the FHA. This could result in lower interest rates, however it could be harder to qualify for a FHA reverse mortgage over a non FHA insured reverse mortgage.
Proprietary Purpose Reverse Mortgage
This is a reverse mortgage that is privately insured by the mortgage companies that offer them. These mortgages do not need to follow all the regulations of an FHA reverse mortgage, however most still follow many of the same practices as FHA reversed mortgages. Proprietary mortgages are usually for homes that are high value, usually $750 000 and more.
Home Affordable Modification Program(HAMP)
This loan modification program is run by the U.S. Department of Housing and Urban Development (HUD), will lower you monthly mortgage payment to 31% of your verified monthly income, in order to make your mortgage payments more affordable.
In fact, 18% of HAMP homeowners reduce their payment by $1000 or more. So you can really see the value of this program based on that stat. As a result of these stats, this is clearly a great program for seniors having difficulties with payments, especially if a reverse mortgage is not an option. If you are interested in more information visit makinghomeaffordable.org
Government Home Affordable Refinance Program (HARP)
This is ideal for seniors who need assistance if your home is underwater, which means the mortgage amount exceeds the property value of the home. The object of this program is to allow you to save on your mortgage payments by refinancing your home.
To find out more about eligibility and to get started, click here.
Principal Reduction Alternative – Loan Modification
If your mortgage is underwater, meaning you owe more then your house is worth, you can modify your mortgage through something called a Principal Reduction Alternative. What this does is, it reduces your payments to a more affordable percentage of your income, and also forgives part of what you owe over time.
To be eligible for this alternative you must:
- the home must be your primary residence
- you must be underwater on your mortgage, with a loan to value ratio greater then 115%
- the mortgage was taken out before January 1st 2009
- you provide proof that you do not have sufficient income to afford the current mortgage
- your monthly mortgage is greater then 31% then your pre tax income
- you are delinquent or in danger of defaulting on your mortgage payments
For more information and how to apply for a Principal Reduction Alternative please visit makinghomeaffordable.gov.
Emergency Homeowners Loan Program
This program provides help to homeowners who have have received a reduction in income, due to unemployment or medical emergency. If a senior is faced with a medical emergency and results in not being able to make mortgage payments, this could be the ideal loan for you. This program provides payment relief to make up for missed mortgage payments, as well as paying for future mortgage payments.
You might or might not have to repay the loan based on the requirements, however if you do, there will no interest charged. For future payment assistance, the homeowner will have to contribute part of the monthly mortgage payment, which will be 31% of the homeowners monthly income.
A mortgage Forbearance is an agreement between the lender and the homeowner, to not force the home into foreclosure. Basically, it gives the homeowner time to get their finances in order such as, receiving financial assistance so they will be able to afford their mortgage payments. This could be a good option to use if you know you will be receiving more income in the near future.
Single Family Housing Repair Loans
If you are a senior in need of home repairs, you could apply for the Single Family Housing Repair Loan. This loan which is run by the United States Department of Agriculture and Rural Development, provides loans to very low income homeowners to improve or modernize their homes. The great part about this loan is the interest rate is only at 1%.
In order to qualify you must meet the following:
- be the homeowner as well as occupy the house
- be unable to afford credit anywhere else such as financial institutions
- have a family income of 50% below the area median income
The maximum amount one can receive for a loan is $7500. This is ideal if you need some repairs done and can’t get a line of credit or cannot afford to get a loan at a financial institution. There are also grants offered towards senior citizens for home repairs and other financial needs a senior might have. Check out our Grants For Senior Citizens article for more information about specific grants.
Secured Loans for the Elderly
Many times, if a senior needs a loan, a secured loan is the best fit. This is especially true if the loan is for home improvement purposes. A secured loan is a loan where an asset such as a house is used as collateral for the loan. This means if you default on the loan the bank would seize the house. This type of loan makes it easier for seniors to be accepted for a loan, and to pay lower interest rates.
If you are going to get a secured loan though, you will need something to secure the loan with — usually your home. You should NOT take out a secured loan, however, unless your financial situation is such that you can repay that loan, however.
Line of Credit for the Elderly
A line of credit is a very popular type of loan for many including seniors. A line of credit is when the lender opens a credit account for you at a specified amount, allowed you to to borrow against that limit.
For example if you opened a $10 000 line of credit at your bank, you would have a separate account that allows you to put up to $10 000 on that account. Think of it as a credit card with a $10 00 limit but with a lot lower interest rates. This can be a good option for seniors, as the interest rates are lower.
There are generally two different kinds of lines of credit.
- A secured line of credit, where you put an asset as collateral for the amount of the line of credit.
- An unsecured line of credit, where no asset is put up as collateral for the line of credit. These are more difficult to qualify for, however if you have a good credit score, you should qualify with ease.
Payday Loans for the Elderly
Sometimes seniors are put into a very difficult situation, where they cannot receive any credit or loans. If this happens, you might be faced with the last resort option, which is a payday loan. These loans are also known as quick cash loans which allow you to receive an unsecured amount of money in as little as a few hours.
Payday loans can be had by virtually anybody. But the catch is the interest rates and fees are enormous. You should NOT even consider a payday loan unless you have cash coming in right away so you can repay it, otherwise you will land in worse financial trouble than before you took out the pay day loan.
The interest rates on these loans are usually very high, so again, this should be a last resort type thing. If you are only short some cash before your next check, you can use this option, however if you find you are continually short on cash, you should look into a line of credit or another loan.
If you would like some counselling on what the best loan option is for you, you can contact a U.S. Department of Housing and Urban Development approved counsellor at 1-800-569-4287 or by clicking here.
Student Loans for the Elderly
If you are looking to go to college you should first see if you can get free tuition through tuition waivers. If you can’t receive free tuition, you can still receive a student loan.
The most common type of student loan is called a Federal Stafford Loan, which offers low, fixed interest rates. For these loans, the school you will be attending determines the amount that you can borrow. There are two types of Federal Stafford Loans:
- Subsidized Federal Stafford Loan: a subsidized loan does not accrue any interest when the student is in school on at least a half time basis
- Unsubsidized Federal Stafford Loan: this loan is not based on financial need, and interest begins to accrue from the time the loan is first received.
You can visit studenaid.gov to learn more about these loans.
In order to apply for any student loan,you must complete the Free Application for Federal Student Aid (FAFSA). You can fill out the FAFSA a few different ways: online at FAFSA.gov which is the quickest method in applying, or download a PDF version and mail it.
It is also a good idea to contact the college or university you are enrolled in to see if you can fill out the application through the school and sometimes they may even be able to submit it on your behalf.