Ah retirement, the time when you can walk away from your job and never look back. Why not? You’ve worked for 30-years or more and you have earned the right to enjoy your retirement. However, there is one wrinkle when it comes to retirement which is how to pay for your retirement home. Well, fear no more as this article will introduce you to the ins and out of getting a mortgage after you have retired.
What’s All the Hubbub?
The reason is simple, mortgage lenders look at borrowers based on the combination of how much they earn and their credit score. As you can see the income piece can be tricky for many retirees largely because they are living on a fixed income.
Even though Freddie Mac recently changed its rules to allow lenders to consider retirement assets to get a loan the rub is that much of a borrower’s retirement assets are meant to cover living expenses. Over time this can mean spending more money on healthcare and this means there is less to pay for a mortgage.
Another wrinkle is that rules specify that a borrower must be fully vested and for some people, this isn’t possible. In addition, the rule only allows lenders to use 70 percent of the assets and then they need to subtract closing costs a well. As such, this might not help many retirees.
More Bang for Your Buck
This brings us to something which every retiree should know about buying a home – that is to look in place where your dollar will go far. This can include the area around Daytona Beach in Florida. When you do this, you can not only get more house for less but this will also reduce the amount you will need to finance, which will make it easier to get a loan.
In fact, people have been moving to low-cost locales for retirement for years now and it with air travel being relatively inexpensive these days you can easily flow home to see the grandkids every now and then.
However, one question comes to mind – or it should. That is, how do you find the right location for retirement. Well, the best advice is to start by talking to your investment advisor to find out home much money you need to purchase a new home. These funds could come from the sale of your existing home, your retirement savings, or a loan. Either way, you want to have a clear idea of the budget before you get started.
From there you can start to look at cost of homes in retirement destinations, such as Florida. Now you don’t just want to look at places where retirees flock but want to make sure these destinations have plenty of the things that you love to do – after all, a rabid skier would want to retire on a sandy beach.
Now Down to the Nitty Gritty
You’ve figured out how much you have and you have found the perfect home, now it is time to buy the house. Here’s what you need to know. First, most lenders who specialize in traditional loans to retirees prefer that the borrower will have a two-year history of draws on their accounts. The reason for this is that the lenders want to make sure the borrowers can manage their money.
Given this wrinkle, you will want to meet with a lender to have them walk you through the qualification process. That being said, there might be another option if a traditional mortgage is not the right fit – a reverse mortgage.
While many people don’t know this, you can use a reverse mortgage to purchase a new home. Granted, the rules for using a reverse mortgage to purchase a home are slightly different but the in some cases this might be the right option for a retiree.
Ultimately, this option is a good fit if you are selling your previous home and need some extra financing to purchase your new home. However, you want to be mindful of how the loan will work as you want to make sure that the equity you have the day you purchase your home is not used to cover the accrued interest over time.