Boomers: Buying your next home
For many Americans, retirement signifies a new chapter in their lives, one that comes complete with a new home. Call it downsizing; call it rightsizing. Regardless, buying a new home in retirement, when many older adults take to traveling and other leisure activities, requires some additional research.
Retirees must first educate themselves about their options and their new reality.
“One of the biggest misconceptions is the assumption that a newer, smaller home will be cheaper than their current, larger one. That’s, unfortunately, not always the case,” says Dave Fry, a real estate professional with Keller Williams in Minneapolis.
Smaller floor plans can often sell for the same price or more, depending on location, amenities or association fees, among other factors.
Fry says retirees should be prepared for the unexpected and suggests they find a good loan officer who will sit down with them and review different financing options before they start looking for potential homes.
Retirees also should keep in mind that once they find the right home for their needs, they would need to act quickly. That might include purchasing a new place before they sell their current home.
“If they’re fortunate enough to have enough equity in their current home, then there are options for a bridge loan or they may even qualify for two homes,” Fry says.
Making two mortgage payments for a few months may be worth the long-term benefits, even if it may mean spending more per month in the short term.
Before making a decision, consider a variety of options, including age-restricted communities.
Independent living communities for seniors have active calendars full of activities for physical, emotional and mental well-being, says Daniel Sagal, who operates Total Senior, a senior housing referral agency in the Los Angeles area.
In addition to the lifestyle, individuals who reside in senior communities are able to age in place and eventually receive assistance with their daily tasks of living.
“Accepting assistance with daily tasks from caregivers you’ve been surrounded by for years, makes for a simpler transition,” he says.
Lori Corken, broker and owner of Lori Corken & Co. in Englewood, Colo., says when retirees look outside of age-restricted communities, it’s important to consider location, amenities and floor plans. The trend is fewer stairs or none at all. An ideal option is a main floor master or a ranch-style home within a walkable community or one that offers exercise trails.
“You also want to look for low or no-maintenance options to allow for a ‘lock and go’ lifestyle,” she adds.
Fry says downsizing retirees should also think about staying put and budgeting for maintenance services, such as lawn care and snow removal.
“You may be surprised when you run the numbers that keeping your current home with that added expense may the net the same result as moving,” he adds.
Given that interest rates currently are low, the “ideal” mortgage is a very subjective and depends greatly on a retiree’s individual financial position, says Fry.
“But I would recommend that retirees consider a fixed-rate loan instead of an adjustable rate loan, because the rates are so low. Plus, adjustable rate loans increase upward as interest rates rise, which means the mortgage payment will grow as interest rates do. And that can be challenging for retirees on a fixed monthly income,” he says.
Damon Nickle, a financial adviser with Biddle Capital Management in Wilmington, Delaware, says the reality is that older adults could deal with life changes that impact their finances, including unexpected health issues or the death of a spouse.
He, too, recommends a more conservative approach to real estate investment.
“You just don’t need to be in debt at this stage of your life,” he says.
Retirees who are downsizing should consider putting at least 20 percent down, if they have that amount of equity in their current home.
From there, they should assess their monthly expenses against their income.
If they are in a position where a tax write-off is needed, then borrowing up to 80 percent may make some sense.
“If retirees are on a fixed income with a tight monthly budget, it would probably make sense to make as big of a down payment as they can so their monthly payment is minimal without putting themselves in a position where any unexpected expense could be trouble,” he says.
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