Seniors: Buy a New Home with This Advice in Mind

Downsizing your home as you approach your retirement years is a popular trend among the current generation of seniors. The homes we raised our children in were right for our growing families, but now that they are grown and out in the world on their own, it’s more than your average older adult needs. Moving to a smaller house has many benefits. You pay less on taxes, utilities, and insurance premiums, which frees up your monthly cash and makes it easier to live on a fixed income. You can find more options in a location you love when you are looking at smaller properties, as well. Furthermore, less house means less maintenance, which gives you the time to spend your retirement doing the things you want to do, whether that means traveling, spending time with family, or passing your days pursuing your hobbies and interests.

Hiring Help for House Hunting

While downsizing may sound like the solution to all your problems, the truth is it’s not the best financial option for every retired senior. If you don’t have the liquid cash necessary for the costs of downsizing, you can quickly find yourself drowning in debt, which kind of defeats the whole purpose. Furthermore, if your downsizing plan doesn’t reduce your home expenses by 25 percent, it’s simply not worth the effort. That’s where a financial planner comes in.

Hiring an advisor to go over your current assets and talk with you about your goals can prevent you from making a costly mistake. They can also help you figure out a workable monthly budget that allows you to spend your retirement years enjoying yourself without worrying if you have enough cash a year from now. Finally, an advisor will do the cost/benefit analysis of downsizing and spell it out in layman’s terms so you know if it’s worth your time, effort, and money.

Once you’ve gotten the all-clear sign from your financial planner to go ahead with the downsizing, you have to get a real estate agent to help with the home-buying process. Find a buying agent whose niche is working with retired people finding the perfect home for their golden years. Not only will they have experience with homebuyers from the same situation as you, they also know how to navigate the financial options available to seniors.

Challenges and Financial Options for Senior Homebuyers

Figuring how much house you can afford isn’t that difficult: establish the amount you have to spend on a down payment, figure out how much monthly spending you can afford on your annual income, and compare those numbers to the loan types available to you as well as the current average APR. However, when you enter retirement, that equation doesn’t quite work. For one, your income is fixed -- you can’t be risky at all with the hopes that you’ll fall into other means of making money. That’s why there are special financial options just for seniors.

The U.S. Department of Housing and Urban Development can provide you with housing and financial counseling that teaches seniors about things such as reverse mortgages and other money-saving ventures that can decrease costs. For instance, energy efficiency courses give you the tools and knowledge you need to knock hundreds off your energy bills while reducing your carbon footprint. They can also teach you about other mortgage and loan types, including a Home Equity Conversion Mortgage (or HECM), and a Home Equity Line of Credit (or HELOC) reverse annuity mortgage. Additionally, there are conventional mortgages available, which eliminate the need for mortgage insurance if you put 20 percent down. With this type of loan, you will need cash reserves and a debt-to-income ratio of 45 percent or less.

Downsizing is a great way for seniors to save money in retirement and free up time. However, it’s not the best financial choice for every retiree, so check with your financial advisor before committing to the idea. If you decide to go through with it, look for a buying agent who works with downsizing retirees on a regular basis. When navigating your financial options for mortgages, use resources available to seniors to get all the information you need.