While most people like to think they won’t have to deal with a mortgage in their retirement years, the reality is that a late-life move can be unavoidable, and paying cash for a new home isn’t necessarily the best choice. And despite the fact that lenders cannot discriminate based on age, some seniors on a fixed income struggle to finance a new home. While you can use your pension, Social Security, and 401(k) to qualify for a mortgage, the total of these income sources is likely less than what you earned during your working years. Thankfully, there’s help available.
Whether you’re heading to a destination home or just moving into a more aging-friendly abode, there are funding options that can help you afford a new home and avoid becoming house rich and cash poor.
If you’re looking to buy a home for your senior years but don’t have a lot of money to commit to a down payment, a Federal Housing Administration loan may be able to help you. An FHA-backed loan lets you buy a home with a down payment as low as 3.5 percent of the purchase price. Since these loans are insured by the FHA, lenders are protected from default and therefore are willing to work with a wider range of credit scores. Some lenders may even help you cover closing costs, although this typically comes with a higher interest rate.
Keep in mind that while they’re called FHA loans, the loans are only insured by the FHA, not disbursed by them. To get an FHA loan, you’ll have to work with an approved lender.
HUD’s American Dream Downpayment Initiative is designed to provide down payment assistance to first-time homebuyers, but moderate- to low-income seniors who haven’t owned a home in the last three years can also qualify for help. With the ADDI program, a senior who is at or below 80 percent of the area’s median income can receive a grant of $10,000 or 6 percent of the purchase price to help with a down payment and closing costs.
Many people know of reverse mortgages as a tool to help seniors keep their home when money gets tights, but fewer realize that a reverse mortgage can be used to purchase a new home. With the Home Equity Conversion Mortgage for Purchase program, seniors age 62 and up can pay about half the price of a house in cash and then receive a loan to cover the rest. The loan doesn’t have to be repaid as long as you’re living in the home, which frees up the cash that would be spent on monthly payments in a traditional mortgage.
A reverse mortgage for purchase is a good option for seniors living on a fixed income who can pay for a sizable down payment with money gained from the sale of a previous home. However, it’s not without its drawbacks. When you use a reverse mortgage to buy your home, the loan balance can grow to exceed the value of the house. This means your heirs are more likely to hand the home back to the bank than inherit it after you pass.
Buying a home is a complicated process for anyone, and it can be especially challenging for seniors seeking to purchase a home on a fixed income. For help navigating all the funding options available to you, consider hiring a Senior Real Estate Specialist or a Certified Senior Housing Professional. With their specialized training in serving senior homebuyers, these realtors can help you with everything from finding an accessible home to locating state-based down payment assistance programs.
Finding the right home may not have the same criteria that it had when you were younger and just starting to raise your kids, but you still want to settle in the one that’s right for you. Find a program that can help you accomplish this.
Image via FreeImages by Aaron Murphy
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