When it comes time to leave the workforce behind, it’s common to consider purchasing a home that better fits your post-retirement life needs. Whether you are looking to downsize in your current community or are thinking about relocating to a warmer climate, both options have financial implications and require planning.
Location is one of the major factors new retirees should consider. When searching for a home, be sure to do your research. While a warm climate or closeness to friends and family may be important, you should be sure to look at the financial side of things as well. Acquisition costs and property tax rates will differ across each state. Some states require a buyer to pay transfer taxes and owner’s policies, which are costs that are customarily paid for by the seller in Michigan. These costs can drive up the amount you’ll need to bring to closing. Certain states are known for high taxes, while others have more modest taxes. Before you settle on a location be sure the property taxes are affordable for your retirement budget.
Newly retired homeowners may love the area they’re in but could be looking for a different type of home. If you’re looking to do less maintenance throughout your retirement, you may want to consider a single level home or a community with shared areas that will save on exterior upkeep. While you’ll be able to avoid the responsibilities of upkeep in a shared environment, there is a price to be paid for having outside parties take care of these services in the form of association dues. These monthly costs are not part of your mortgage payment, but they are considered part of your monthly housing obligation. Association dues can vary significantly, so examining these costs is an important step to help you decide where you want to purchase and what you can afford.
Once you figure out where you want to live and what type of living arrangement you are looking for, the next step is financing. You may have sufficient equity in your current home to pay cash, but for many people, getting a mortgage is the best option. If you are keeping your current home, you can purchase your retirement dwelling as a second home. These types of mortgages require that you provide at least 10 percent as a down payment and you need to qualify with your existing housing payment and the housing payment of your new home.
On top of the where and what, you should also focus on the when. Deciding when to buy is incredibly important, especially when it comes to post-retirement living. You can usually qualify for more home when you are working, but you need to keep in mind that you may eventually be on a fixed, retirement-income. If you decide to buy after you are no longer working, lenders can qualify you using your social security, pension and retirement fund distributions, as well as any other income you may have.
Your retirement is a time that is meant to be enjoyed. Making the best financial decisions will enhance the quality of your retirement and doing some research will help you make the best choices for you and your specific situation.