You likely have a pretty clear picture of retirement dream home—whether it's a cottage in the Connecticut countryside or a lakeside retreat.

Well, AARP suggests it's time to stop dreaming and start buying: In a recent article, they featured four couples who achieved their dream on a very ordinary budget ("Can You Afford Your Retirement Dream Home?" March 2015).

Take the Grushes, who bought a Wisconsin farmhouse for just $172,000. What makes it an ideal home for them is the garden and its huge bed of perennials.


AARP provided tips on how you, too, can find a dream home in retirement:

  • Use a map to mark important places in your life, such as where your kids live. You may want to stay within some kind of commutable distance.
  • Think dream life rather than dream home. In other words, focus on the quality of life in your new location: Your house itself may be smaller than what you currently have, but the cost of living and the desirability of surroundings can transform the humblest of abodes into a dream home.
  • Cast your net wide for the best deals. If you love lakes or beaches, search for a home a little further inland. The short drive will be well worth it when you factor in the reduced property prices.


For those considering purchasing a home, here are some key questions you should ask yourself:


  • Fixed rate or adjustable rate? If you plan to hold on to the property for the long haul, you may favor the predictability of a fixed rate mortgage. An adjustable rate is linked to a predetermined benchmark, such as U.S. Treasury rates, and may fluctuate: If rates go down over time, you end up paying less. Conversely, you may plan to sell the house after a short time, before the rates go up.
  • Do I have enough for a down payment? In order to secure a mortgage, it is typical for a mortgage lender to ask for 20% of the house's value upfront. If you cannot afford such a hefty cash payment, you may get away with paying less—but you'll probably need to take out private mortgage insurance. Just make sure that down payment does not bankrupt you: You'll need some money leftover for moving expenses and "closing costs."
  • What are closing costs? When you close the deal, you will need to pay the mortgage lender a set of fees that typically adds up to 2-7% of your home's value. These costs may include mortgage "points" that equate to prepaid interest charged by the lender. One point equals 1% of the loan: That's $2000 of a $200,000 loan.


As AARP's four featured couples demonstrate, you don't necessarily need to over-stretch yourself financially in order to afford your dream home. Don't take the maximum amount a lender offers you just because you can. The general rule is that your mortgage payments (and other housing costs) should not exceed 28% of your monthly income.


What does your dream home look like? Tell us about it!