If you watch videos produced by the AARP, you’ll see everything from retirement-aged stars rocking stilettos to guys flying their personal fighter jets. The moral, simply put, is that people over the age of 50 do the same things that thirtysomethings do.
And that includes buying homes.
There are more than 78 million “Baby Boomers” in the United States, and an average of 5,000 people are turning 65 every day. Many are making transitions to new homes—and we don’t mean just to get closer to public transport or to avoid staircases. Many are downsizing now that their children have moved out, and others are fortunate enough to be retiring to warmer climates, such as Florida. Even when selling their old, most retirees will require home financing, especially considering current trends toward the city.
“(Retirees) want property that’s more affordable and easier to care for. There’s a return to urbanism going on now,” explains David Bruns, communications director at Florida’s AARP headquarters in Tallahassee. “They need to think about what their needs will be over a long period of time. Not just you at 65, but you at 85.”
More often than not, this advice is given with regard to the features of a home. Unfortunately, as with people of all demographics, not enough information is given regarding what happens behind the scenes, such as securing finance for a new home. Here are three major risks that retirees should consider when applying for a mortgage.
Can I Make The Monthly Mortgage Payments?
First thing’s first: The Equal Credit Opportunity Act means that lenders cannot discriminate against a borrower because of age. That said, the income verification process might be more rigorous. The good news is that retirees can pull from any number of sources to qualify as income, including social security benefits, individual retirement accounts, 401(k) distributions annuity payments and capital gains (as well as fixed incomes).
That said, just because you qualify for the loan doesn’t mean you should jump for it.
All borrowers should aim to keep their mortgage payments at no more than 45 percent of their monthly income. All borrowers are also advised to keep a healthy “rainy day” fund on hand in case of emergency situations. This is all the more important for seniors, who could experience sudden changes in health or lifestyle that require attention. What was once a reasonable mortgage payment is now nearly impossible.
Speak with a lender and determine what you consider to be a safe monthly payment.
The Worst Can Get Worse
Dealing with the loss of a spouse is already a crushing emotional blow, but when they’re tied to a mortgage, it can become a crushing financial one as well.
Many retirees use pensions or retirement plans to contribute to financial qualifications on a loan. Although few plans quit paying to legal partners following the death of the holder, many cut back payments anywhere from 25 to 50 percent. Unfortunately, your monthly mortgage payments remain the same.
A life insurance policy can help mollify the problem, but take this into consideration when considering what mortgage is optimal for you.
Fixed Incomes Are Fixed. The Value of A Dollar Is Not.
Once again, you need to make sure that you’re ready not just for a decade from now, but three decades from now. Fixed incomes will remain the same as the years roll on, however the prices of food, medication and other necessities will increase as inflation pushes onward.
For example, $1 in 1986 is the same as $2.16 in 2016, based on inflation rates. If things were to advance at the exact same rate, that means today’s value meal hamburger will cost $2.16 in 2046. Now apply that to almost your entire budget.
Your housing payments will remain the same if you’re locked into a fixed-rate mortgage, but the rest of your needs will make your budget increase quickly. If you signed on for an adjustable rate mortgage, your monthly payments could spike up as well.
Talk to The Right People
This advice is not limited to retirees or elderly homebuyers: Only deal with legitimate, certified lenders when looking for a mortgage. Unfortunately, the older the individual, the more likely they are to be targeted by scammers. Simply put: If it sounds too good to be true, it almost certainly is.
As the AARP would attest, buying a new home is a very realistic possibility for anyone over the age of 50. As any good lender would attest, make sure you plan properly and consult with the experts before jumping in.