Mortgage loans: your age isn't a factor, but it influences other ones

Your age cannot be used as a factor for being denied a mortgage loan if you're at least 18. However, the experiences that come with age can be used, like if your income isn't high enough. 

Gene J. Puskar/AP/File
A sale pending sign in the front yard of a home in Mt. Lebanon, Pa. on March 5, 2013. Your age cannot be used as a factor for being denied a mortgage loan if you're at least 18, but the experiences that come with age can influence your odds.

You're never too old for a mortgage loan — and if you're at least 18, you're not too young to take out a mortgage loan, either. Mortgage lenders are not allowed to use age as a factor for denying borrowers a mortgage loan. Thank the Equal Credit Opportunity Act for this; the federal law prohibits discrimination based on everything from a borrower's age to that person's race, color, or national origin. But just because you can qualify for a mortgage loan at 19 or 90, doesn't mean that you always should.

"To me, the age isn't the main factor, ever," says Kyle Winkfield, owner of The Winkfield Group, a retirement planning firm in Rockville, Maryland. "Everything has to do with your own personal situation. Can you afford what you are biting off, what you are signing up for with a mortgage? A lot of financial tragedies could be avoided if people would ask whether they can really afford a mortgage loan, no matter what age they are."

Here are four reasons why you might be too young or too old for a mortgage loan.

1. Your Income Isn't High Enough

When determining whether you can afford a mortgage, your lender will consider any source of regular monthly income. When you're younger, the majority of your income usually comes from your steady job. When you're past retirement age, your monthly income might be made up of Social Security benefits, a pension, legal settlements, income from real estate that you own, or several other sources.

Lenders usually want your total monthly debts — including the cost of a new mortgage payment — to be no more than 43% of your gross monthly income. But just because a lender approves you for a mortgage of $200,000 doesn't mean that you can really afford the monthly payments that come with such a loan. Take a close look at your income. Will the addition of a mortgage payment, whether you're 20 or 70, bust your monthly budget? Owning a home is nice, until making those monthly mortgage payments becomes a real struggle.

"You might qualify for a mortgage with a $3,200 monthly payment," Winkfield says. "But in reality, with all the other things that come up with owning a home — the electric bill, maintenance, surprise repairs — can you really afford it? You have to take a long look at your finances, no matter how old or young you are."

2. Your Credit Score Is Low

Lenders rely on your three-digit credit score to determine if you are a good lending risk. If your score is low, you'll pay a higher interest rate on your mortgage loan, and that might make your monthly payment so high that taking on a mortgage loan doesn't make sense.

Erin Ellis, financial educator at Philadelphia Credit Union, says that a low credit score is often a challenge for younger borrowers. Some young borrowers might not have enough of a credit history to even have a score. If these borrowers can even find a lender to loan them mortgage dollars, they'll have to pay dearly for them in the form of higher interest.

Older buyers, too, can have credit score issues, too. Older borrowers who have recent bankruptcies, missed payments, or foreclosures on their records will struggle to get a mortgage loan with a reasonable interest rate.

"If your credit score is low, it often doesn't make sense to apply for a mortgage loan," Ellis says. "The low interest rates make mortgages appealing today. But if your credit score is low, you won't get those low rates."

3. You Won't Be Settling Down

Buying a house and taking on a mortgage loan is a better investment when you're able to hold onto the property for a long enough period of time — usually at least seven years. Historically, homes have tended to experience solid appreciation when owners hold onto them for at least this length of time, though appreciation is never guaranteed.

If you're young and just getting started in your career, renting might make more sense. You don't know how long you're going to remain in one neighborhood or city. Job changes might take you to new communities or even countries before your home has a chance to appreciate in value significantly.

And if you're older? There are again no guarantees that you'll hold onto your new home for a long enough period of time. You might suffer ill health and have to move to an assisted-living facility. You might decide to move to a new part of the country so that you can spend more time with your grandchildren.

If you aren't sure how settled you are into your current community, taking on a mortgage loan might not be a wise choice.

4. You Can't Clear the Down Payment Hurdle

The down payment on a home can be a struggle for both younger and older borrowers. Even if you qualify for a mortgage loan backed by the Federal Housing Administration, you'll have to come up with a down payment of 3.5% of your home's purchase price, if your credit score is high enough. For a home costing $200,000, that 3.5% comes out to a down payment of $7,000. For conventional financing, you might have to come up with a down payment of 10%, or $20,000.

That's a lot of money for a young person just getting started on a career. Yes, borrowers can use financial gifts — as long as they are true gifts and not a loan that they have to pay back — to cover all or part of a down payment. But young people whose parents don't have $7,000, $10,000 or $20,000 sitting around might struggle to come up with a down payment.

Older buyers have their own issues with down payments. They have to make sure that their combination of monthly income and savings will last them through their retirement years. Spending a chunk of their savings on a down payment could put them at financial risk, especially if they don't have much money from another home sale to help cover down payment costs.

If your down payment will wipe out all of your savings, it might make sense to wait until you've saved more money for a down payment. After all, you'll need money to furnish and maintain your home after you've purchased it.

But if none of these factors are an issue for you? Taking on a mortgage loan might make financial sense.

"If you can qualify for a mortgage loan — and that's a fairly big 'if' — then I think a mortgage makes sense for most people," says Matthew Tuttle, chief executive officer and chief information officer of Tuttle Tactical Management in Greenwich, Connecticut. "I know this can be controversial, but I'm a big fan of never paying your mortgage off. The only time when a mortgage doesn't make financial sense is when interest rates are extremely high. At these low interest rates, why wouldn't you want to take out a mortgage loan?"

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