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6 Things You Need To Know About Buying A Home In Retirement

6 Things You Need To Know About Buying A Home In Retirement

ChameleonsEye / Shutterstock.com Retirees, even those who have owned a home for decades, may face unusual challenges when buying a home. As you appro

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Retirement standing in front of his new home
ChameleonsEye / Shutterstock.com

Retirees, even those who have owned a home for decades, may face unusual challenges when buying a home.

As you approach or enter retirement, you will probably think less of good schools and more of good hospitals and public transportation.

Older home buyers usually prefer smaller, single storey homes. Many are looking for features to help them age in place – such as wide halls and doors, no stairs and a curb-free entrance.

Qualifying for a home mortgage can also present new challenges for buyers who no longer draw a regular salary.

Searching and buying at this stage of life requires a new attitude. Even experienced homeowners can face unusual challenges. Here are some things to know about buying a home in retirement.

1. Having a mortgage is not necessarily bad

housing costs that exceed savings
pogonici / Shutterstock.com

Conventional wisdom says you should pay off all your debts, including a mortgage, before you retire. But this is not always possible. Or even advisable.

Should retirees ever get a new mortgage? Refinance? Maintain an existing mortgage or pay it off?

Sure, having a mortgage-free home is a good goal, and it usually allows retirees more financial space. But the question of whether you should have a mortgage is part of your broader retirement retirement plan. The answer, for each of us, depends on our own situation.

Learn more: “7 times you should not pay off a mortgage before retiring”

2. Look beyond the weather

Senior couple in front of their house
Andy Dean Photography / Shutterstock.com

If you have been snowballing every winter of your working life, it is understandable that you want a retirement home where the weather is balmy.

But do not make climate your only – or even main – consideration.

Your finances also play a big role in whether and how you enjoy retirement. Looking for a new place? Before you decide, learn what the recurring costs will be in a new area, including housing, income taxes, property taxes, the cost and availability of medical care, and the quality of public transportation.

Today’s retirees often look beyond the traditional retirement mecca in their search for an ideal home. A 2021 poll did not designate Florida but Georgia as the No. 1 state for retirees. Yes, Georgia’s warm climate helps, but so does its overall affordability.

The survey mentions Tennessee, Pennsylvania, North Carolina and others as attractive places for resettlement of retirees.

Learn more: “Do not retire before answering these 4 questions”

3. Plan to ‘age in place’

Accessible house with wide corridors
Det-anan / Shutterstock.com

When you retire, it’s worth asking, “Could this be my last home?” If so, make your home choice with a view to getting older.

Regardless of your current health and mobility, find a home that will serve you in your 70s, 80s and beyond. Typically, this means a single-storey house, without stairs to manage in case walking becomes difficult for you.

Also consider homes with accessibility features: wider hallways and doors, lower counters (to accommodate a wheelchair), bathroom grab bars, and curbs-free entrances and doors.

Learn more: “8 Essential Home Features for Aging in Place”

4. You can use a reverse mortgage to buy a home

Senior man filling out a reverse mortgage application
Casper1774 Studio / Shutterstock.com

You’ve probably heard of reverse mortgages. These home loans allow qualified homeowners 62 and older to borrow funds using their homes as collateral.

You might be surprised to hear that you can also use a reverse mortgage to buy a home. Seniors who meet the requirements use state-insured HECM (Home Equity Conversion Mortgage) reverse mortgage loans to help with a home purchase.

However, the rules are fine. If you are considering exploring this angle, find a lender with expertise in reverse mortgage buying, Ellen Skaggs, a mortgage banker at New American Funding, tells Money Talks News. Skaggs trains NAF lending officials to help lenders qualify for a HECM purchase.

In the past, reverse mortgage lending has a reputation for high cost and risky features. Newer federal regulations, however, make loans safer, writes Wade Pfau, an expert on retirement financing, in his book “Reverse Mortgages: How to Use Reverse Mortgages to Ensure Your Retirement.”

Reverse mortgage benefits include:

  • Qualified lenders can continue to live in their homes for the rest of their lives.
  • No mortgage payments are required.
  • Lender education by state-approved counselors is required.

Reverse bond disadvantages include:

  • Lenders need to maintain their property and make all tax and insurance payments, Skaggs says.
  • To buy a home with a HECM loan, you need to buy mortgage insurance and make a down payment of about 45% to 62%, according to the National Reverse Mortgage Lenders Association.
  • Fees, including deferred interest and mortgage insurance premiums, can be high, Skaggs says; they are paid (plus the outstanding principal amount) when borrowers die or leave the home and sell or refinance them or their heirs.

Learn more: “Should I get a reverse mortgage?”

5. It may be more difficult to qualify for a loan

Ruslan Huzau / Shutterstock.com

As was true when you were working out, when you apply for a mortgage with retirement, it helps to show borrowers a strong credit score, low debt and a solid down payment.

Lenders are prohibited by law from discriminating on the basis of age. But the lending standards they are used to usually look at a borrower’s monthly salary or W-2 salary. If you can not demonstrate sufficient monthly income – even if you have a lot of savings or investments – it can be difficult to qualify. Therefore, you should again get a lending officer and lender with expertise to help retirees buy a home.

The financial services company MassMutual explains how to find an expert:

“Before spending too much time with a lender, prospective lenders may ask a few selection questions to determine if they have the willingness and knowledge to handle their application.”

For example, says Mass Mutual, ask the lender how you would qualify for the loan using retirement income and what his approach is to help you qualify based on your assets, instead of simply on your monthly income.

6. You may need to use alternative ways to qualify for a loan

Woman with piggy bank
Krakenimages.com/Shutterstock.co

If your monthly taxable income – including pension checks, social security, dividends and interest – does not qualify you for a mortgage, there are alternative approaches, including:

  • Eligible with 401 (k) or IRA withdrawals. Temporarily withdrawing funds from a retirement account can help you meet the requirements for mortgage applications, says this CNBC article. Work with a trusted tax advisor and find out if you can return the money to the retirement account after you qualify for the mortgage. Pay attention to repayment periods so that you do not have to pay tax on the withdrawal. Also keep a careful record of the money’s transition from retirement account to bank account so that you have a paper trail to show a borrower.
  • Qualify with assets. Lenders can consider IRAs, 401 (ks), insurance policies and other assets when qualifying you for a mortgage. The rules are complex and so, look around again until you find a lending officer who has helped other retirees get a mortgage, says Mass Mutual.

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