Eric Reed

A financial advisor can help you create a financial plan for your homebuying needs and goals.

How Age Can Make It Harder to Get a Mortgage
As Federal Reserve economist Natee Amornsiripanitch noted in a recent brief,
older mortgage applicants are ''significantly'' more likely to be rejected for a
loan than similarly situated, but younger, borrowers. At the same time, loan
rates increase steadily with age, peaking for new borrowers over the age of 60
and 70. The difference of interest rates is less pronounced, as lenders charge
older applicants modestly higher interest rates while they reject older
applicants much more often, but both trends are still very real.

While it seems that mortgage lenders consider older borrowers a greater risk due to issues of income and mortality, homebuyers should note that under Equal Credit Opportunity Act makes it illegal for lenders to deny loans based on age.

For reference, the Consumer Financial Protection Bureau says that ''[a] lender generally can't deny your loan application or charge you higher interest rates or fees because of your age. This rule applies to various types of lenders when they're deciding whether to give credit, such as an auto loan, credit card, mortgage, student loan, or small business loan.''

But there are two exceptions to this rule. The first exception allows lenders to account for age as long as they do so in favor of applicants age 62 or older. This is a relatively common practice in discrimination laws, which typically allow direct consideration of age so long as it benefits older individuals. But the second exception, however, can seriously hurt older borrowers. While lenders aren't allowed to explicitly consider an applicant's age in the mortgage process, they can relate age to other, permissible factors.

For example, a lender may consider how close the applicant is to retirement or what mortality risks are involved with this loan. They can also consider factors that typically correlate with age, such as whether someone will repay the loan with the returns from an investment portfolio rather than earned income. And this can create a problem for many older borrowers.

Money is often not the issue for older Americans. As they enter retirement, the baby boomer generation still holds around two-thirds of the country's wealth. According to the Federal Reserve, adults in their 60's and 70's own about $70 trillion in collected assets. That compares favorably with $39 trillion held by Generation X. It's almost nine times what millennials own, a generation that's collectively worth only about $8.8 trillion. If anything, raw finances suggest that older borrowers should have a far easier time getting loans than their younger counterparts.

Yet baby boomers' wealth is increasingly concentrated in assets rather than income. Many retirees live off investments such as 401(k) plans, IRAs and the wealth in their homes. For lenders this creates a credit risk. Portfolio drawdowns aren't a basis to reject someone's loan, but they make a credit analysis more complicated than with a structured W-2 income.

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