As a senior, there are plenty of reasons why you may want to buy a new home, whether it’s the first time you’re considering buying a house or you’ve lived in the same home for decades. Many seniors feel the need to downsize as they age, others may want to move closer to family. Whatever the reason, it’s important to know what financial challenges may await if you’re living on a fixed income.
Can I get a new loan?
Since the 70s, U.S. law has ensured that lenders cannot deny credit to those who receive public benefits like social security or welfare. But this doesn’t mean that it’s particularly easy for those living on fixed incomes to receive a traditional mortgage.
Lenders typically prefer steady income in the form of a paycheck when giving out home loans. Of course, many seniors living on a fixed income are no longer employed – so this can be a roadblock. Fortunately, lenders will consider other forms of steady income as long as it’s substantial.
“Lenders need proof that you can afford your monthly mortgage payment … it might be difficult to provide this proof if you no longer have a steady salary. But lenders will consider other forms of income, including monthly Social Security payments, rental income from investment properties, regular payments from legal settlements, payments from retirement accounts and pensions, and any other income you receive every month,” notes The Motley Fool.
If you can provide proof of adequate monthly income (and have solid credit, of course) – no matter the source – there’s a chance you’ll be able to secure a new mortgage. Seniors living on a fixed income may want to look into loans specific to the Federal Housing Administration.
“An FHA loan is a mortgage insured by the Federal Housing Administration. Borrowers with FHA loans pay for mortgage insurance, which protects the lender from a loss if the borrower defaults on the loan,” says Bankrate. This means that since lenders can offer them with less risk, these type of loans may be more competitive than other types.
Is a traditional 30-year loan the best option?
Even if you’re able to secure a traditional loan to purchase your new home, is it really the best option?
Many opt for loans with longer repayment periods because the monthly mortgage payments are cheaper. But if you’re 65 years old, for instance, is that really the best option? It may make sense to take out a shorter-term loan, if you can afford the monthly payments, as income can fluctuate over time and you can possibly find yourself more income-poor the older you get.
Traditional mortgages may not even be your best option. Alternative plans like purchasing a new home with a reverse mortgage can sometimes be a better option.
Don’t forget all of the “hidden” costs
Buying a new home isn’t just about securing a loan and worrying about the mortgage payment. As a senior living on a fixed income, it’s important not to forget all the other costs of moving into a new home. Don’t forget about property taxes and homeowner’s insurance, both of which will raise your monthly payment. Hiring moving help costs money, and is a necessary expense. If you’re downsizing, you may need to use a storage service for some of your belongings, at least temporarily, until you can get rid of the excess. And certainly don’t underestimate home maintenance costs, which can total thousands of dollars every couple of years.
There’s no reason a senior living on a fixed income should be scared of purchasing a new home, but you should know the challenges you may face in securing financing and research your best options. It may be smart to consult professional help when attempting to finance this massive purchase in your later years.
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