Buying a home is always a major life decision. But it can be an especially consequential choice once you are retired. That’s because most retirees are on fixed incomes, and financial mistakes can be much more damaging when you don’t have a lot of time to make up for any losses and can’t necessarily just work more if you need extra cash.
Before you decide to purchase a home in which to spend your later years, there are a few key things to consider to ensure you make the right choice. Here’s what they are.
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It can be harder to get a mortgage as a retiree
For many retirees, getting a mortgage can be challenging due to the fact they may not have traditional proof of income, such as a paycheck.
While Social Security benefits, investment income, and pension money can generally count as income for a mortgage, your earnings from these sources may not be enough to qualify for a loan. And you will also need two years of tax returns to provide proof of income, which you may not have as a new retiree.
You do have options to get a mortgage, though, despite not getting a paycheck from an employer any longer. You may be able to qualify based on the value of your assets in an IRA or brokerage account, for example, or you might be able to take a loan against your brokerage account instead of getting a mortgage.
But these options may not work for everyone, and you may find fewer lenders willing to work with retirees who are trying to provide alternative proof that they qualify for a home loan.
Home maintenance can become challenging
Homeownership requires you to be prepared to take on maintenance of the property. Remember that this may become more difficult as you age.
If you don’t want to worry about mowing a large lawn, cleaning a huge house, or covering the costs of home repairs with your fixed income, then you may decide that renting is better for you.
As a renter, you’ll know your costs up front, and the landlord will take care of any maintenance or other problems with the property. And you may be able to get an affordable, smaller space with less interior and exterior upkeep than a house you own would require.
You may not have time to wait out a downturn
If you buy a home late in life, there’s a chance that you might not be able to live in it for long. If your health status changes and you can no longer maintain the property, you may be forced to sell sooner than expected.
Unfortunately, selling a house you haven’t owned for at least two to five years could make it very difficult not to lose money due to the high transaction costs associated with property sales. And if the real estate market goes down and your house loses value, you may not be able to wait to sell it until the property market recovers.
While none of these downsides are necessarily reasons not to buy a house as a retiree if you’re in a financial position to do so, they need to be thought through before you pull the trigger. By considering the financial and practical implications of your purchase, you can make the home-buying choice that’s best for you.