In the last week, I’ve had about eight different readers in different parts of the country write in with questions about buying homes in retirement. And I will answer them in my Q-and-A columns.
A couple of the questions were logistical items, like whether mortgage lenders will actually count retirement income for purposes of qualifying for a mortgage (yes) and questions about the process of selecting the location for buying a home in retirement.
The majority of the questions, though, were quite a bit more concerning to me. They also posed questions about whether buying a home in retirement could be done, but the factual scenarios involved made me circle mentally back to the more fundamental issue of whether it should be done, in particular situations.
Can you buy a home in retirement? Of course. Should you, if all you possess in this world is a monthly income of $600 per month? Highly doubtful.
The fact that multiple retirees wrote in with incomes well under $1,000 per month and no cash reserves trying to figure out how to buy a home while others with much higher retirement cash flows and existing home equity had essentially written themselves off as unable to get a mortgage highlighted several fundamental flaws in the way we think homebuying should be different in retirement, than it is before retirement.
For example, many seemed concerned that the simple fact that they are retired or that their income comes from a pension or Social Security might disqualify them for a mortgage. Nothing could be more wrong.
Lenders are much more concerned with the past and future stability of your income than they are with whether it comes from working or retirement funds — so long as you can document a steady income from the same industry for the past couple of years, and so long as your retirement income is not set to expire shortly.
The fact that retirement income is fixed does not, in itself, factor one way or the other with mortgage lenders. Pre-retirement people are not credited with any assumption that their income will increase over the coming years or that they will have the opportunity to work overtime or a second job, so the fact that retirees’ income is static does not ding their mortgage qualifications in any way.
And lenders do not even take age into consideration; I’ve seen 90-somethings qualify for home loans, with the required income and assets. In fact, retirees often have the strength of many more years of sustained, good credit ratings in their favor over younger borrowers.
However, lenders are very concerned with the sufficiency of any income to cover the borrowers’ mortgage payments and other living expenses — and retired borrowers should be, too.
To the extent that someone planning for retirement can purchase and finance her retirement home while she is still working, it is probably easier to do so, for purposes of qualifying. However, the monthly mortgage commitments on retirement homes should be calculated to be sustainable well within the parameters of planned retirement income — obviously.
As retirees are increasingly planning to continue some sort of part-time work well into their "retirement," that income can be calculated into their personal financial plans to help cover retirement mortgage and other housing costs.
So, if you are retiring at an age and state of health where you plan to continue some sort of work, or your retirement income is significant enough that you need the tax advantage of homeownership, or you have sufficient income and assets — including existing home equity — to afford a home and you want to own one, then by all means, go for it, whether or not you are facing retirement.
My own parents and grandparents have all owned their own homes throughout retirement and I’m grateful that they have been blessed with the physical wellness and financial ability to enjoy their homes much more during their retirement years than they ever had time to while they were still working full time.
However, if you are facing retirement and have little or no income to speak of, and no intention or ability of working, the question is: Why own a home? Why would you even want to buy a home?
I hate to see retirees spending their supposed-to-be-golden years stressed and worried about keeping a home, just because they think they "should" own a home.
Considering rising health care costs and costs of living, against the fact that some people will now live 30, 40 or even 50 years in retirement — and need to stretch their retirement funds to cover that much time — if owning a home would require you to truly scrape out the bottom of your barrel of cash reserves to come up with a down payment and closing costs, it just doesn’t make sense to exhaust your financial resources to own, compared to renting.
I know a number of retirees who, frankly, could not really afford to own their homes, who have let go of the idea that they "should" and have found lovely rental homes — some in senior housing complexes that charge rent on a sliding scale — and are blissfully living their retirement years to the fullest while letting their landlord worry about landscaping and repairs.
I know many others who overextended during the subprime era and are now faced with having depleted their retirement savings to try to hang onto a home they eventually lost anyway; with no home and no savings, they are really in dire straits, largely out of trying to chase an American dream that was not in alignment with the facts of their own lives.
If you want to buy a home for your retirement, on today’s market, there are a number of amazing opportunities to do so. Many of the retirement hot spots — including Florida, Nevada and Arizona — were also foreclosure hot spots, so bargain-basement pricing can be had on homes.
(Caveats are in order, though, about the economic depression currently prevailing in some areas; getting a part-time job or ensuring the health of the homeowners association in which your dirt-cheap foreclosed condo is located might be much more difficult in these places than elsewhere.)
But don’t fall under the spell of the fantasy of a cheap home of your own, especially if your finances are very, very tight — know that there’s nothing wrong with renting in retirement, and it can actually be the right, sustainable choice for some retirees.
Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.
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