What are the options for purchasing a home during retirement? Is the only or best option to make a purchase before one retires or are there other options for those already in retirement? For example, will a lending institution approve a loan based on a persons net worth, since they are no longer actively employed?
We used the proceeds of our previous house along with a very short bridge loan to match up the new purchase with the old sale. This involved moving to a bigger house in a cheaper area, but there were sufficient funds to allow this cash purchase. I don't know about today's rules on this arrangement with all of the loan issues one hears about.
Thank you for your comment.
zebrasenior, thanks for starting a discussion thread!
I recently tried to refinance my mortgage, and was unable to do so because I have retired and do not have a monthly income. I am deferring receiving Social Security, and my annuity will not start paying for a year, so I am living off of savings, set aside for this specific purpose, at present. Although I have enough $$ to pay off my loan, or to buy a new home with cash, and my net worth is many times the loan amount, and I have a credit score of 800+, they were unwilling to refinance my current loan because I do not have a monthly income. If this is the case for a simple loan refinance, I imagine it would be the same for purchasing a new home. That suggests to me that your only option will be to buy a home outright, unless you have a stable monthly income in retirement (SS + Pension+Annuity+etc.). Since the housing bubble burst in 2008, they have tightened up mortgage loan requirements. On one hand, that's great, because folks who shouldn't be getting loans no longer are getting them, but for those of us with excellent credit ratings, solid net worth and repayment history, it is unfortunate.
Thank you for your comments. I assumed that a steady income would be sufficient to convince a funding source to extend a loan. I would not like to be saddled with this in retirement, but it is necessary to look at all options, especially as housing costs continue to rise and one must consider whether to grin and bear it or bail out.
Did you know you can purchase a home using a reverse mortgage ? This is a great option if you do not want a monthly mortgage payment and want to keep a portion of your money in investments, instead of paying 100% of your transaction in a cash down payment to buy a home. There are no income or credit scores, or debt ratios to qualify for! Do your research , because there are so many misconceptions about reverse mortgages. There are some great benefits of using a reverse mortgage and unfortunately way too many myths about them.
Set-up costs and interest rates on reverse mortgages are high. I would only recommend them only to those who may not otherwise have the money to keep their home.
No I did not know this. I will surely investigate this possible option and learn more about reverse mortgages. Thank you for highlighting this.
Here is an option for those who might be working part-time doing consulting work or whatever. Anything you get a 1099 for, no matter how little. Consider establishing a solo401K and roll some of your other retirement funds into it. You can borrow up to 50% or 50K (whichever is less) of that money to purchase a home. (Where I live in Mississippi you can buy a house for that, really.) You have to charge yourself interest (generally 1% over the prime which would be 4.25%) but if it is for a principle residence you can amortize the payments over 15 years.
Very interesting, thank you!
As others have responded, I found my total net worth meant nothing. The only thing that counted was monthly income. The finance person at the bank suggested I take some of my income and convert it into a dependable income stream, unfortunately something I do not want to do. Seems the only option is to sell my current home first and risk needing to have my belongings put into storage if I don't find a new house quick enough.
I'm with you (not wanting to) -- and we have been in this house three decades, beginning fourth year in our retirement. This is is the first house we bought (we were forty, now age seventy). Our only offspring and his and daughter-in-love children (our grandchildren) are nearby.
I don't know if I would want to enter into a situation like that in my 60's, 30's I could chalk it up to being a daredevil. But again, all options and perspectives are important to air and be considered. The best will come from some aspect of each (or a portion of each). Thank you.
In the October 2014 AARP Bulletin, Jane Bryant Quinn addresses several strategies related to how renting might be the answer, even if a temporary one to cover the transition. See "Rent or Buy: Is One Better for You?"
Thank you for alerting us of this article. I received my AARP Bulletin and saw the article. I was also going note it. Very helpful, very timely.
If you're not certain, this is a pretty good market to explore a lease in -- i.e., you can try the house out for a year or two and then decide if you like it.
I found my net worth was considered by lenders -- I think they wanted to know that I had reserves backing up my income: a TIAA annuity and SSA. But it ended up cheaper for us to buy the house on my wife's income ... she is younger than me by a good notch and I think they're more certain she'll live for long enough to pay off the loan.
As my kids say: "Whatever."
Thank you for your observations. I have noted a lot of lease options- much like a try-out.
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