While many seniors downsize to more modest living accommodations, you may have your eye on an upscale condominium in a walkable part of downtown, or a turn-key ranch on sprawling acreage. You’ve saved for years, and you’re ready to enjoy the fruits of your labor in style! If you’re over the age of 65, you may be wondering if taking out a mortgage on a new home is a good idea. Determine what’s right for you by reviewing the following guide for homebuyers 65+.
No Such Thing as ‘Too Old’
If you’ve already confirmed you have the means to move, do you want to stick around in a home no longer meeting your needs or wants?
It’s important to decide on a location complementary to your lifestyle and needs. While a particular city may seem idyllic upon visiting, you should thoroughly research what it would be like to live there. What is the weather like year-round? Is traffic an issue there? One factor many retirees consider is proximity to family. If you have adult children or grandchildren you want to visit often, it may make more sense to live close by rather than move across the country. Selling your home too soon after buying it cancels out the financial benefits of homeownership, so do your due diligence.
As with all decisions, it’s crucial to be mindful of any unique considerations related to your circumstances. While it’s a difficult thing to consider, if you are married you should confirm you can afford the mortgage payment should your spouse pass away. This may leave you with less retirement income if, for example, the monthly payout from their pension is set up to stop once they pass.
A lender will take the same factors into account for a retiree as they would anyone else: credit score, debt-to-income ratio, and income. As a retiree with no job income, you may be wondering if this automatically disqualifies you. Lenders can’t discriminate based on age under the Equal Credit Opportunity Act, but lenders do have special considerations for retirement income. This can include funds from Social Security, a pension, or annuity. Annuity income must continue for at least three years after a mortgage loan is taken out to qualify in a lender’s calculations.
To create more cash flow, you can also tap into your IRA or 401(k) penalty-free if you are over 59 ½ years old. The distributions will be visible to the lender in your bank statements. Just like with annuities, a lender will want to verify if 401(k) or IRA distributions can continue for at least three years. Avoid being sporadic with distributions; instead, make a plan for regular withdrawals.
NOTE: For any non-liquid assets, like stocks, a lender will only consider 70% of their value. This is to take any potential drops in value into account due to a changing market.
Types of Mortgages
Monthly mortgage payments for a fixed-rate loan remain the same over the life of the loan. The interest rate is based on a variety of factors, like inflation and the housing market, and will never change unless you refinance. You will likely have a lower monthly payment with a 30-year mortgage vs. a 15-year mortgage, but also a higher interest rate. Because of this, you’ll pay more interest over time. If minimizing your monthly payment isn’t a concern for you, it may be more beneficial to opt for a 10- or 15-year fixed-rate mortgage if the monthly amount is reasonable for your budget.
Adjustable-Rate Mortgage (ARM)
The interest rate on an ARM is initially lower than a fixed-rate mortgage, but it changes on a pre-determined basis. E.g. If you have a 5/1 ARM, the rate is fixed for 5 years then changes on an annual basis. The lower initial interest rate will save you money in the long run, but know your monthly payment can fluctuate once the fixed rate ends. You can’t predict what your financial situation will be years into the future, so fluctuating monthly payments may be a variable you’re not interested in dealing with.
First, let’s go over the pros of owning a home. A house will likely have more square footage than a condo and include a yard or outdoor space. You won’t have to share any walls with neighbors (sweet, sweet privacy!), and you’ll have more of a say over what you do to the property.
Some homes are part of a subdivision that require you to pay a Homeowners Association (HOA) fee. This monthly fee covers additional services like landscaping, pool maintenance, and other items around the subdivision. Keep in mind that these services typically don’t extend to your property to cover things like mowing or snow plowing (the exception is for subdivisions with “club” or “maintenance” fees in addition to the HOA). However, the HOA does have rules and guidelines that affect your property, like permissible types of fencing or paint colors.
As a whole, houses typically cost more than condos, and living in one is more expensive because you are often solely responsible for upkeep and maintenance. Keep this in mind as you age, and plan for accommodations if you’re unable to complete tasks yourself.
Condominium or Townhouse
Depending on the location, a condo may cost less because it typically doesn’t come with a lot of or any land. The structure can be freestanding or share walls.
Many condos have Condominium Associations that serve a similar role to an HOA (and sometimes, they are still referred to as an HOA). Dues paid cover upkeep for community spaces, and potentially even utilities like water, sewage, and trash. Snow plowing and landscaping are typically taken care of – no more yard work or shoveling your driveway!
Condos can be a bit more difficult to sell because homebuyers have to consider a potentially high HOA fee and lack of privacy. Consider this before taking the plunge.
Don’t let age hold you back from going after what you want. People 65+ are just as eligible for mortgage loans as other homebuyers. Before you enter the market, reach out to General Electric Credit Union (GECU) to see what mortgage interest rates and terms you qualify for. Getting preapproved makes you more attractive to sellers when trying to buy a house!