Buying a home when you retire can be a dream for many, and the reasons may vary. Perhaps it’s to finally own a dream vacation property or perhaps for some, it’s the right time to become a first-time homeowner.
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Yet, some experts warn against the pitfalls that can be associated with such a huge purchase in retirement. Along with a variety of other factors to consider, seniors also have to contend with inflation — which puts a dent in everyone’s savings — and soaring rates that continue to affect everything from credit cards to mortgages.
In fact, Steve Sexton, the CEO of Sexton Advisory Group, said that while there is no one-size-fits-all rule here, buying a home when you retire is generally seen as higher risk.
“First, you may encounter challenges qualifying for a mortgage since lenders will ask you to prove the stability of your income, which is likely coming from a variety of sources, like your Social Security benefits, retirement accounts and more,” said Sexton.
He added that while it’s not impossible, it will likely require jumping through hoops. “You should also be prepared to be offered a less competitive interest rate — which are already high to begin with.”
Here are other reasons why you should not buy a home in retirement.
When transitioning to a fixed income, financial flexibility is key.
As Peter C. Earle, a senior economist with the American Institute for Economic Research, explained, “Renting permits the avoidance of mortgage and ownership costs, which allows for a more seamless adjustment to the changing financial circumstances of retirement.”
In addition, he said, homeownership involves ongoing maintenance and repair expenses that can strain a fixed income, whereas renting shifts these responsibilities to the landlord.
“Owning a home brings ‘iceberg’ costs, which are particularly risky for individuals on a fixed income: expenses that appear minimal initially but significantly increase over time due to hidden or unforeseen factors,” he said.
Last but not least, Earle also said, as healthcare needs change with age, renting provides retirees with the flexibility to relocate for better facilities or move into assisted living communities, if necessary.
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As of December 18, a 30-year fixed-rate mortgage stood at 6.6%, according to Freddie Mac. To put this in perspective, this is more than double where it stood on Dec. 16 of 2021 — at a shocking 3.12%.
These factors alone generally make buying a house at retirement “not ideal,” according to Justin Haywood, the president and co-founder of Haywood Wealth Management.
“High interest rates mean higher monthly payments, which can strain a retiree’s fixed income,” he added.
Haywood continued, noting that because retirees typically have less flexibility to handle increased expenses, higher mortgage payments can significantly reduce the amount of disposable income available to them for other essential expenses such as healthcare, travel or leisure activities.
What’s more, according to Haywood, home prices in most areas are at or near all-time highs in 2024. And purchasing a home at such elevated prices (in addition to the higher interest rates) means that retirees will be paying a premium for their new residence.
“This can lead to a significant portion of their retirement savings being tied up in home equity rather than more liquid investments,” he continued. “Saddling yourself with a 30-year mortgage at retirement is not advisable for most.”
And instead of enjoying the flexibility and security that should come with retirement, Haywood warned retirees might find themselves stressed about making monthly mortgage payments for the next several decades.
Buying a home also comes with a slew of additional costs — such as repairs and maintenance — which can quickly add up and eat up at savings.
“Some experts recommend planning on spending at least 1%-3% of the purchase price of a home on repairs and maintenance annually,” advised Michael Micheletti, home equity and housing expert, as well as chief communications officer at Unlock Technologies.
He continued, “If you need to contract out these tasks, you’ll face the costs as well as the time involved in finding, hiring and supervising the personnel. For indoor maintenance, you’ll also be responsible if an appliance wears out or has any issues.”
Sexton also points out that if you prefer flexibility in your retirement, buying a house can wind up being a drag on your future plans. For example, if you value being able to move closer to family and loved ones at the drop of a hat, owning a home can make that significantly harder to do.
“If you’re not planning on spending the next 20 years in your home, buying a house when you retire may not be a wise move,” said Sexton. “It’s important to have clarity on the type of retirement you envision and determine whether buying a house aligns with this vision or not.”
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This article originally appeared on GOBankingRates.com: 3 Reasons You Should Not Buy a House When You Retire
Kelly Huston is a freelance writer who covers everything from politics and health to business and parenting. She's been writing for DMG Energy News since 2018, and she's an avid reader of the site. When she's not writing, Kelly can be found spending time with her family and working out at the gym.
