People entering retirement may consider buying a home once they do. However, most retirees have a fixed income in their retirement years and need to be careful when considering using their savings for a major purchase.
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Are you thinking about how to buy a house when you are retired? Here’s what you need to know about the financing options that may be available to you and whether or not it’s worth the investment.
Financing a retired home purchase
What is the best way to finance a home purchased in retirement years? Retirees may consider looking into the following options. As always, remember that every retiree’s financial situation is different and the option you choose will ultimately depend on your unique circumstances.
Explore the educational resources available
Before committing to a specific type of financing, Scott Berens, CEO of Balsamo Homes, recommends reviewing resources designed to help seniors find homes. Here are some resources to check:
- AARP HomeFit Guide. The AARP Foundation offers a free publication called HomeFit. This helps seniors not only find a home that meets their needs and budget, but also includes a list of things to consider when buying a home and tips for financing, moving, and more.
- The National Council on Aging. Berens said he has housing consultants available who can help seniors with everything from finding affordable housing to negotiating a mortgage.
Sell your existing home
One of the most unique challenges of retirement is the transition to life on a fixed income. Retirees looking to buy a home may be wondering how they can qualify for a mortgage and whether they will be able to make these monthly payments.
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“Take a closer look at your finances,” advises Berens. “If you have equity in your current home, you may be able to use it as a down payment for your next home.”
Once you figure out how much money you have available for a down payment, Berens said you can start buying homes in your price range. Some retirees may also benefit from special programs that offer lower interest rates and reduced monthly payments.
Boyd Rudy, an associate broker at Dwellings Michigan, said one of the best ways to finance a retired home is through a reverse mortgage. This option is available to seniors aged 62 and over and allows you to use your existing home as collateral.
“This type of loan allows you to cash in on the equity in your home without having to make monthly payments,” said Rudy.
The downside to a reverse mortgage is that it can be expensive. Commissions and interest rates can add up, potentially denting your net worth. There are also strict rules surrounding reverse mortgages to be aware of. Retirees may want to consider researching lenders with experience in these mortgages before pursuing the option further.
Check out the discounts for seniors
Depending on where you live, you may be eligible for a discount on buying a home.
Christina McCollum, Washington’s regional head of Churchill Mortgage, said most counties offer a senior property tax discount. If you’re struggling with mortgage accessibility issues as a retiree, it might be worth looking into.
Review affordable lodging options
What if you’d rather not buy a new home because it has the potential to be quite large, mostly empty, and could require expensive financial costs like repairs and maintenance?
Retirees can always stay in their current residence or check out affordable housing options, according to McCollum’s recommendation. Retirees living on a fixed, limited income who like the area they live in can check out senior or retiree communities.
Borrow on the sidelines
If you don’t have enough money on your mortgage loans to finance a home, David Tully, a real estate agent at eXp Realty, said you can borrow money from a brokerage firm for the value of your wallet.
“This is called a margin loan,” Tully said. “You can use the money to buy stocks or something completely unrelated to investing. The interest rate of these loans is lower than other types of borrowed money ”.
Ultimately, the decision whether or not to buy a home during retirement depends on personal circumstances. Those who do their homework and consult with financial advisors well in advance, however, will be in a good position to make an informed decision that best meets their needs.
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This article originally appeared on GOBankingRates.com: How to Buy a Home When You Are Retired
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