What you should know about buying a home in retirement

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In a Nutshell

Buying a home in retirement? Consider your needs and wants, but also your budget and your practical concerns. Taking stock can help you make choices that suit how you want your golden years to play out.
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Whether you’re nearing retirement age, already retired or many years away, retirement can be an exciting stage of life to contemplate. Some want to travel the world. Others hope to take it easy and settle down. You might feel like downsizing, relocating or updating your current home to better accommodate your changing lifestyle.

Depending on your circumstances, you might also consider buying a new home when you retire. If that’s the case, it’s not a bad idea to start thinking sooner rather than later about the pros and cons, and about how a mortgage could affect your golden years.



How much mortgage can you afford?

Your financial picture can change a lot in retirement, depending on your savings, other assets and income. And how much money you need to retire depends, among other things, on the lifestyle you want during that time.

If you’re thinking of buying a house when you retire, one key thing to figure out is how much of a mortgage you’ll be able to qualify for (and afford) without a regular salary.

You can start by looking at your debt-to-income ratio — comparing your monthly debt with any money you expect to be coming in during that time. This number is a key factor lenders use to evaluate your ability to pay a mortgage. While standards vary by type of loan and lender, qualifying for a loan with a DTI ratio of more than 43% is unlikely.

To ensure that you choose the best mortgage for you, it can be helpful to meet with a lender to talk about what you can afford and what is realistic. You’ll want to keep in mind that paying for a mortgage on a home means paying for property taxes and insurance along with your principal balance and interest.

You can shop and compare mortgage rates on Credit Karma. It can be tempting to start looking for your dream home and try to get approved for a loan once you’ve found it, but getting preapproved can help you determine what’s realistic for you before you start house shopping.

Should you have a mortgage during retirement?

Some people aim to pay off their mortgages before retirement to lower their cost of living. Others are OK with a mortgage, as long as it’s practical for their situation. It’s ultimately a matter of personal and financial preference and ability. Here are some pros and cons about having a mortgage during retirement.

Pros

  • Tax benefits — Having a mortgage may be helpful at tax time. For example, you may be able to deduct your mortgage loan interest. But tax laws can change from year to year, so be sure to check with a tax pro to learn what the allowable deductions might be for any given year.
  • Stability — Owning your own home in retirement means you don’t have to worry about your rent going up, losing your lease or dealing with a landlord.

Cons

  • Long-term debt — Your mortgage (and associated costs, such as taxes and insurance, on top of it) will be an ongoing monthly obligation that you might not want in retirement.
  • Property taxes — Potentially another big financial commitment. And if you don’t stay current on your property taxes, you might have to deal with collection actions, which in some cases can include the tax collector seizing your home to sell it.
  • Home maintenance — These costs aren’t always predictable and can run from minor fixes to major projects like roof repairs or replacement.

Figuring out where to settle

While some choose to simply downsize in the same area, others will move to a new location with better weather, lower taxes or improved quality of life overall. Whatever the reason, it’s a good idea to get to know an area before uprooting your life.

Think of it like test-driving a car. Setting some time aside to experience what it’s like in your chosen location at different times of the year — and to see what the cost of living is like day to day — can give you a more realistic idea of what it might be like to live there more permanently.

Considering family and friends

Though it can seem enticing to pick up and resettle somewhere else for retirement, moving away from family and friends can complicate relationships.

Will your loved ones be able to visit as often as you want, or will you be able to visit them? Think again about the costs of such travel. Can you afford to buy a new home with enough space to accommodate visitors?

Consider mobility and accessibility

At some point — though perhaps much further down the road — many older adults have to deal with mobility issues. That’s an important consideration if you’re thinking of buying a “forever” home to enjoy during your retirement years. You may want to downsize from your current home to save money on property taxes, insurance, utilities or maintenance costs — but also possibly to eliminate stairs that could become difficult to navigate, for example.

In this sense, it’s important to think about buying a home you can grow into, not out of. Here are some examples of features you might want to think about being able to have or incorporate into your home, if needed:

  • Open floor plans and wide hallways, doorways and entryways to allow for things like wheelchair access or other equipment
  • Wheelchair ramps and low countertops
  • Step-in showers
  • Slip-resistant flooring
  • Home security and monitoring systems
  • Swing doors

Bottom line

Whether to buy a home for your retirement years is a decision you’ll want to make based on your particular financial and personal priorities. If you’re realistic about your current and future needs and resources, you’re more likely to make a better choice about buying. Listing the financial and personal pros and cons for your situation can help you sort it out.