Most new homeowners decided to go from renter to homeowner because they had saved a sizable down payment, and either they or a mortgage lender determined the costs of home ownership were no greater than 30% of their income.
But what if you’re retired and on a fixed income? Suddenly deciding between renting and buying isn’t so simple.
No matter why you’re moving as you enter retirement, whether to downsize or be closer to family or for some other reason, there are a few things to keep in mind.
Here are three questions you should ask if you’re trying to decide whether renting or buying is right for you:
1. Do you have a stable income?
It’s helpful to have fixed housing costs to match your fixed income. For that reason, a mortgage may make more sense. With a fixed rate mortgage, you don’t have to worry about rent costs increasing every year. Instead, you’ve have one payment every month and you’ll build equity as an added bonus.
It’s important to know your market, however. As your real estate agent, I can provide you with the cost comparisons between renting and owning in the neighborhood of your choice to ensure you’re making a smart financial decision.
If you don’t plan to put down roots quite yet or wish to try out a neighborhood, then you may want to rent. It’s much easier, and less expensive, to move about if you are renting.
2. Can you handle maintenance?
Paying your mortgage every month is one thing, but if you’ve ever been a homeowner before, you know there’s more to owning a home. There’s the regular upkeep—like yard work and routine maintenance. Then, there are the big ticket items, like a new roof, and the “surprises,” like an HVAC system that needs replacing or a plumbing problem.
Upkeep and maintenance is typically a major concern for retirees. It’s true that by renting, you eliminate most of that worry. But, there are other solutions that let you be a homeowner. If you have it in your budget, you may be able to hire someone else to cut the grass and take care of the upkeep. But a better option might be to buy a condo or move to an HOA-maintained neighborhood where your property is cared for and you can live maintenance free.
3. Will you qualify for a mortgage?
If you haven’t taken out a mortgage in over 10 years, you should know that the rules have changed due to Dodd-Frank regulations. Back then, the emphasis was on credit history and a large down payment. Today, your income plays a much bigger role in the equation. You’ll need to show that whatever income you’re getting from Social Security, investments or your retirement account is enough to quality you for the home you want to buy.
That’s not to say you may not have an advantage in getting a mortgage. Your credit score and debt levels are likely better than younger homebuyers. Plus, if you’ve sold a house recently or plan to sell, you’ll also have a large down payment from the equity.
Bottomline: In many ways, home ownership has many of the same advantages for retirees as it has for younger buyers. But, you’ll want to plan for maintenance—both the costs and the labor involved.
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