Home Loans for Pensioners
It is more difficult, but Australian borrowers on pensions can get mortgages.
Some lenders view pensioners as high-risk borrowers. But there are many lenders willing to offer home loans to individuals receiving pension benefits, even if you're in your 60s or 70s. Read on to learn more about what options are available.
How can I get a home loan on a pension?
Pensioners applying for home loans must keep in mind that their income and financial position might limit their success in getting a home loan. This is mainly because the pension is lower than the income level most lenders require.
There are several ways a pensioner can apply for mortgage finance. The best option for you depends on your financial situation.
Apply for a normal home loan
If you have forms of income from other sources or are only borrowing a small amount you may be able to apply for a home loan like any other borrower. If this is your situation you might be able to get a very competitive interest rate, so be sure to compare your options.
Apply with a specialist lender
There are lenders who specialise in providing finance solutions to borrowers in difficult or unique circumstances. There are even lenders who focus entirely on older borrowers.
Talk to a mortgage broker
Perhaps the best option for pensioners looking for a home loan is to get in touch with a mortgage broker. This is because mortgage brokers specialise in helping borrowers in unique circumstances and they have access to a wide panel of lenders.
A broker can help you look for loans and lenders that match your requirements. Their services are typically free to you because the lender you choose will pay them a commission.
What documents do pensioners need to supply for a home loan?
As a pensioner you will need to provide a few extra documents in addition to the standard documents in a mortgage application. Every lender has their own requirements but you'll generally need to provide the following:
- Evidence of funds to complete the deposit.
- Bank statements showing Centrelink benefits being paid into your bank account (i.e. some lenders require 6 months of recent bank statements).
- Letter from Centrelink confirming the status and nature of your disability pension.
What about borrowers on disability pensions and veterans' pensions?
Generally, lenders consider a disability pension to be a valid form of income, meaning they treat a home loan application for someone on a disability pension just like any other application.
Most lenders will review your application on a case-by-case basis. Your eligibility for a home loan will depend on the amount of income you receive and how much of this can be used to service a loan.
Other factors including your age, assets and debts will be assessed by a lender on an individual basis.
Many lenders may accept a Veterans' Pension as a source of income for a home loan. This applies if you are receiving:
- War Widow's or Widow's Pension
- Service Pension
- Veterans' Affairs Age Pension
Additionally, lenders may accept the Department of Veterans' Affairs Incapacity Pension as a source of income. In order to demonstrate your pension as a source of income for a home loan application, you'll need either a current bank statement showing your pension payment, or a current Department of Veterans' Affairs statement.
Other mortgage types for older borrowers
If you're a pensioner who already owns their own home you have some other finance options. Both reverse mortgages and line of credit loans allow you to borrow money against the equity in your home.
- Reverse mortgages. A reverse mortgage allows you to borrow funds using equity from your home as security for the loan. A reverse mortgage can either be paid as a lump sum, a regular stream of income, a line of credit or a combination of these. No income is needed to qualify and for this reason, the interest rate tends to be higher. You must repay the sum of borrowed money when you sell your home, pass away or move into aged care.
- Line of credit loans. A line of credit is a funding line which uses the equity in your home. It’s an approved amount that you can use a bit at a time or all at once. You loan is approved against a security and you can draw on this loan amount at any time. You only pay the interest on the amount that you use. For example, if you get a line of credit of $200,000 and only use $50,000, you only pay interest on the $50,000. These are good for those who are unsure if they need the full value of a loan.
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