Retirees, even those who’ve owned a home for decades, can face unaccustomed challenges when buying a home.
As you approach or enter retirement, you are likely to be thinking less about good schools and more about good hospitals and public transportation. Older home shoppers may favor smaller, single-story homes. Many seek out features to help them age in place — like wide halls and doorways, no stairs and a no-curb entry.
Qualifying for a home mortgage also can present new challenges for buyers who no longer are drawing a regular paycheck.
Home hunting and buying at this stage of life requires a new mindset. Even experienced homeowners can face new challenges. Following are some things you should know about buying a home in retirement.
1. Having a mortgage isn’t necessarily bad
Conventional wisdom says you should pay off all your debts, including a mortgage, before you retire. But that’s not always possible. Or even advisable.
Should retirees ever get a new mortgage? Refinance? Keep an existing mortgage or pay it off?
Certainly, having a mortgage-free home is a great goal, and it typically allows retirees more latitude financially. But the question of whether to have a mortgage is part of your broader financial plan in retirement. The answer, for each of us, depends on our own situation.
2. Look beyond the weather
If you’ve been shoveling snow every winter of your working life, it’s understandable that you want a retirement home where the weather is balmy.
But don’t make climate your only — or even main — consideration.
Your finances also play a big role in whether and how you enjoy retirement years. Scouting for a new location? Before making up your mind, learn what the recurring costs will be in a new area, including housing, income tax, property tax, the cost and availability of medical care, and the quality of public transportation.
Today’s retirees often look beyond the traditional retirement meccas in their search for an ideal home. A 2021 survey named not Florida, but Georgia as the No. 1 state for retirees. Yes, Georgia’s warm climate helps, but so does its overall affordability.
The survey names Tennessee, Pennsylvania, North Carolina and others as attractive places for relocating retirees.
Learn more: “Don’t Retire Till You Answer These 4 Questions”
3. Plan to ‘age in place’
When moving in retirement, it’s worth asking, “Could this be my last home?” If so, make your home choice with an eye to growing old.
Regardless of your current health and mobility, find a home that will serve you in your 70s, 80s and beyond. Typically, that means a single-level home, with no stairs to manage in case walking becomes difficult for you.
Also consider homes with accessibility features: wider hallways and doorways, lower counters (to accommodate a wheelchair), bathroom grab bars, and no-curb entries and doorways.
Learn more: “8 Essential Home Features for Aging in Place”
4. You can use a reverse mortgage to buy a home
You probably have heard of reverse mortgages. These home loans allow qualified homeowners age 62 and older to borrow funds using their homes as collateral.
You may be surprised to learn that you also can use a reverse mortgage to buy a home. Seniors who meet the requirements are using government-insured HECM (Home Equity Conversion Mortgage) reverse mortgages to help with making a home purchase.
The rules are finicky, though. If you’re thinking of investigating this angle, find a lender with expertise in reverse mortgage home purchases, Ellen Skaggs, a reverse mortgage national sales manager with Paramount Residential Mortgage Group, tells Money Talks News.
In years past, reverse mortgages had a reputation for high costs and risky features. Newer federal regulations, though, make the loans safer, retirement finance expert Wade Pfau writes in his book “Reverse Mortgages: How to use Reverse Mortgages to Secure Your Retirement.”
Reverse mortgage pros include:
- Qualified borrowers can continue living in their homes for the rest of their lives.
- No mortgage payments are required.
- Borrower education by government-approved counselors is required.
Reverse mortgage cons include:
- Borrowers must maintain their property and make all tax and insurance payments, Skaggs says.
- To buy a home with a HECM loan, you’ll need to buy mortgage insurance and make a down payment of around 45% to 62%, according to the National Reverse Mortgage Lenders Association.
- Fees, including deferred interest and mortgage insurance premiums, can be steep, Skaggs says; they’re paid (plus the outstanding principal) when borrowers die or leave the home and they or their heirs sell or refinance.
Learn more: “Should I Get a Reverse Mortgage?”
5. Qualifying for a loan can be harder
As was true when you were working, when you apply for a mortgage in retirement, it helps to show lenders a strong credit score, low debts and a solid down payment.
Lenders are forbidden by law from discriminating based on age. But the lending standards they are accustomed to using typically look at a borrower’s monthly salary or W-2 wages. If you can’t demonstrate sufficient monthly income — despite having plenty of savings or investments — qualifying can be difficult. That’s why, again, you should find a loan officer and lender with expertise in helping retirees buy a home.
Financial services company MassMutual explains how to find an expert:
“Before spending too much time with a lender, would-be borrowers can ask a few screening questions to determine if they have the willingness and the know-how to handle their application.”
For example, Mass Mutual says to ask the lender how you would qualify for the loan using retirement income and what its approach is to helping you qualify based on your assets instead of simply on your monthly income.
6. You might need to use alternative ways to qualify for a loan
If your monthly taxable income — including pension checks, Social Security, dividends and interest — doesn’t let you qualify for a mortgage, there are alternative approaches, including:
- Qualifying using 401(k) or IRA withdrawals. Withdrawing funds temporarily from a retirement account may help you meet mortgage application requirements, says this CNBC article. Work with a trusted tax adviser and find out if you can return the money to the retirement account after you qualify for the mortgage. Pay attention to repayment deadlines so you won’t have to pay tax on the withdrawal. Also, keep a careful record of the money’s passage from retirement account to bank account so you have a paper trail to show a lender.
- Qualifying with assets. Lenders may consider IRAs, 401(k)s, insurance policies and other assets when qualifying you for a mortgage. The rules are complex and so, once again, shop around until you have found a loan officer who has helped other retirees get a mortgage, Mass Mutual says.