Retirement is one of the major milestones in our lives. And, while many people liken retirement to fun and relaxation, it may come with financial changes not considered pre-retirement. Having increased time on your hands as a result of retirement may increase your expenses as you find yourself doing or wanting to do things you didn’t have time for before. And taking out a loan may help with some of these expenses.
There are many reasons why retirees may need a loan. It could be to buy a car, a home, home improvement projects, or an emergency. However, many retirees think they can’t get a loan and this couldn’t be farther from the truth.
The truth is that It’s more difficult to borrow in retirement as loss of regular income makes lenders wary of your ability to repay the loan. It’s an open secret that income is a key factor in securing a loan. But there are a number of borrowing options retirees can use instead of taking funds from their retirement plans, which is not advisable at all.
Lenders will look at your credit score, assets, and income from pension and part-time to determine whether you qualify for a loan. And these are some of the options available to you.
Mortgage Loan
Retirees looking to buy a home can consider getting a mortgage loan which uses the home they are buying as collateral. Regular income is key to getting a mortgage which can be a big issue for retirees. However, lenders have a system for determining retirees’ income, and pension, investment income, as well as social security are considered as regular income.
Annuity, retirement account income, survival benefits, and spousal benefits can also be considered as regular income provided you can prove their continuance for at least three years after the date of your mortgage application. And the most important thing is to find a lender experienced in giving loans to retirees. And be sure to ask them how they view retirees’ income.
Reverse Mortgage Loan
Reverse mortgage loan, also referred to as HECM—home equity conversion mortgage, is another loan option available to retirees. And this type of loan can provide retirees with monthly payments, a steady line of credit, or a lump sum based on the value of a home. A peculiar feature of reverse mortgage loan is that the loan is not paid back until the homeowner dies, moves out, or sells the home.
Despite the perks of reverse mortgage loan, you should check if the program is the best one for you. And, according to All Reverse Mortgage, seniors should seek out reputable lenders to avoid bad actors in the reverse mortgage scene looking for trusting seniors that are desperate for cash.
Home Equity Loan or Home Equity Line Of Credit
Home equity loan is a type of secured loan that allows you to borrow against the equity in your home. Your home equity refers to the real property’s current market value. You have the option of setting up your home equity financing as a line of credit or a loan. The home equity line of credit option allows you to draw funds from an amount equal to your home’s equity as needed. On the other hand, the home equity loan provides you with the total cost amount upfront.
To qualify for a home equity loan, you are required to have a credit score of at least 620
have 15% to 20% equity in your home. And of course, compare terms from different lenders before making a decision.
USDA Housing Repair Loan
The USDA housing repair loan is targeted at very-low-income homeowners and you’ll have to meet this criterion to qualify for the loan. As the name implies, this loan is granted to homeowners to repair, improve, or modernize their homes. In the case of seniors or the elderly, a USDA loan can be granted to remove health and safety hazards.
One of the benefits of this loan is the low interest rate of 1%. There is also the long repayment period of 20 years and the maximum amount that can be borrowed is $20,000. Other requirements of the USDA loan include the borrower being a homeowner, occupying the house, and being unable to secure affordable credit elsewhere.
Unsecured Loans And Lines Of Credit
If you don’t want to put your assets – home, car – at risk, you can consider getting unsecured loans and lines of credit such as credit unions, banks, or peer-to-peer loans (P2P) (funded by investors). There are also credit cards that have a 0% introductory annual percentage rate.
Unsecured loans and lines of credit are more difficult to obtain than secured loans and usually have higher interest rates. You should only go for them if you are certain of paying back within the specified timeframe.
