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Purchasing a home after retirement is possible, but challenging. In this article, we discuss the challenges and considerations of moving into a home during retirement.
It would be ideal to enter retirement without any monthly mortgage payments. But, what happens if you've finally found your dream home at the same time you leave your career? Or, what if you are looking to downsize to enjoy a life with less home maintenance?
Fortunately, the federal Equal Credit Opportunity Act law prohibits lenders form denying potential borrowers because of their age. However, if you are looking to move later in life, you'll have a mortgage payment and the burden of caring for a house in your retirement years. In this article, we discuss the challenges and considerations of moving into a home during retirement.
Purchasing a home after retirement is possible, but challenging.
Getting a loan, whether you are retired or not, depends on your income, credit history and assets. When you are working, it will be easier to show you cash flow to a lender, which is why some people may be advised to purchase a home right before they retire. For retirees, many won't have a regular income, so their assets will have to carry them through the process.
You may not realize it, but Freddie Mac allows retirees and other individuals to use income from their retirement funds and other retirement assets to qualify for a loan. According the Freddie Mac website, the new rule took effect in 2011, but it took until 2013 before borrowers and lenders started noticing it and using it.
Freddie Mac explains that those retirement assets must be in a full-vested retirement account recognized by the IRS. Additionally, those funds must be entirely accessible to the borrower without any withdraw penalties.
Downsizing to a less expensive home during retirement can improve your finances, however, like with all major decisions, you should weigh the pros and cons of each situation.
First, you'll want to consider how the monthly mortgage payment will affect your retirement budget. Consider how taking on a new home will affect your cash flow circumstances. Many homeowners opt for a 30-year mortgage, which can reduce the payments. However, this could mean that you are on the hook for the entirety of your retirement years.
Next, you'll want to consider any additional housing cost needs. This will include additional expenses for repairs and upgrades, which will undoubtedly cut into your retirement savings. Be sure to allot a budget for repairs and upgrades that may come your way. As you age, you may need to remodel to account for your aging in place needs, which could result in expensive upgrades.
Another major consideration is if you can qualify for a mortgage during retirement. Although federal law prohibits lenders from refusing to lend to you because of your age, lenders will still pull your credit score, assets, and income sources to determine whether you will qualify for a loan. During retirement, your annual income will typically drop dramatically. This could ultimately affect what mortgage payment you could afford. It's not a bad idea to get an idea of what you can afford by utilizing a mortgage calculator. This will also play into what mortgage term you can afford.
After you have crunched the numbers, you may decide that renting is the best option. Although Americans tend to revel in the American dream of homeownership, renting is a financially sound option that allows individuals to enjoy a set monthly payment, allowing for easier budgeting. Additionally, it can cut down on the monthly maintenance associated with homeownership.
Before deciding if you want to purchase a home or rent, it's important to consider how long you expect to stay in your new place. Renting is a great option for those that are not sure where they want to settle long-term.
Of course, this is an entirely personal decision, and will depend on your individual wants and needs.
If you are looking to secure a mortgage loan during your retirement years, you'll still need to qualify. Here are some things that your mortgage lender may look at:
Verifying Income : When retired individuals or couples apply for home loans, the requirement for income verification may be a bit more stringent.
Typically, Social Security benefits, IRA's, 401K distributions and annuity payments will be examined to determine qualification for a home loan. During the underwriting process, all of the income on your application will be verified. Retired individuals will need to show copies of retirement income award letters, bank statements, and income tax returns.
Income Length: Different mortgage lenders will have its own specific income guidelines for loaning to retirees, although, the general requirement for considering retirement income on home loans is that it must continue for at least three years. Therefore, most mortgage lenders will discount income that lasts less than three years.
Although it may be looking to buy your dream retirement home, it's important to weigh your options. Buying a home during retirement can allow you to move closer to family members or relocate to a warmer climate, which could make it the right move for you.
If you are ready to search mortgage rates in your area, utilize BeSmartee to compare hundreds of loans at once. Once you find a loan that fits your needs, you can get instantly approved in minutes. No other lending process has ever been this easy. Get started today!
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