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Buying a home after retirement

One of the biggest decisions you'll make as a retiree is where you want to live. Maybe you want to move closer to grandchildren, live in a retirement community or perhaps moving will free up some money for your retirement plans. Or maybe you want to buy a home that's better suited to the retirement lifestyle.

Whatever your reasons, you'll want to consider all your housing options and find the one that's best for you. In some cases, buying a retirement home before you retire may be your best option. For others, renting may make the most financial sense. And for some, they'll need to get a mortgage to buy the retirement home of their dreams. If you’re approaching retirement or are there already, it's a good time to weigh the pros and cons and choose the housing option that's right for you.

Things to consider when deciding where to live after you retire

Thinking through your future plans and needs now can help you make a better buying decision. Here are some things to consider when looking at your retirement housing options:

  • What sort of lifestyle do you want in retirement? Some people can't wait to join an active retiree community where they can focus on their hobbies. Others crave a quiet rural life with their garden. Or maybe you imagine yourself traveling the world and need a low-maintenance home. Think about the lifestyle you want to enjoy during retirement so you have a better idea about the type of housing you need.
  • What will your income be in retirement? If you've already retired, you have a good idea what your monthly income is. If you haven't retired yet, you may want to talk with a financial advisor to determine the income you can reliably expect to bring in. This will help you determine how much home you can afford in retirement. Even if you’re paying for a property outright, you'll still have expenses such as maintenance, HOA fees, taxes and insurance to cover.
  • What care needs are you likely to have in the future? It's impossible to predict the future when it comes to your health. However, you'll want to consider how your needs may change as you get older. You may want to live in a property that suits those needs now or can be easily retrofitted when needed.

Housing options after retirement

Once you have a clearer picture of both your desires and needs in your retirement years, it's time to start considering where you want to live. Retirees have plenty of options, all with their own pros and cons.

1. Downsizing your current home

If you currently own a home, you may want to sell it to move into something smaller and more manageable. Downsizing may allow you to use equity to buy something less expensive. Then you can use any leftover money to boost your retirement income. Downsizing can reduce your monthly payments, too. It may also allow you to choose a home that's better suited to your changing needs, such as fewer stairs or senior-friendly bathrooms. For those with a lot of equity in their current home, this can be a good option.

  • Pros: May help you get money from the equity in your home to use towards a new home or to boost your retirement income
  • Cons: Locks you into a property when you may want more flexibility in your retirement years

2. Staying in your current home

A lot of people approaching their retirement years intend to age in place by staying in their current home and adapting it to their needs as time goes on. This can be a nice option if you love your home. You'll also know your home's maintenance requirements and can plan for them. Be aware of the increasing maintenance costs as you grow older, though. This includes retrofitting for your changing needs and paying someone to do the things you may no longer be able to do yourself.

  • Pros: You get to stay in the home you already know and love
  • Cons: Retrofitting and increasing maintenance costs over time

3. Renting a retirement home

Some seniors may find it makes more sense for their lifestyle and finances to rent a retirement home or apartment. Renting means you may not have to deal with maintenance issues. Renting can also give you more flexibility to move around. If you don't already own a home, renting may be a better option.

Keep in mind that landlords can raise your rent or ask you to vacate, too. Renting can be less stable since owning a property could allow you to lock in a low monthly mortgage payment with a great interest rate.

  • Pros: You'll be able to move more easily and won't have to worry about maintenance issues
  • Cons: Doesn't provide the same long-term stability as owning a home

Should you buy a retirement home now?

There’s another housing option for those nearing retirement but are still working­—buying a retirement home now. If you plan to retire near your current location, you could sell your home and move into your retirement home early. If you plan to retire far away, you may need to carry two mortgages until you’re ready to relocate. There can be some significant financial benefits to purchasing a retirement home before you actually retire.

  • May be easier to qualify if you buy while you’re still working. The Equal Credit Opportunity Act means creditors cannot discriminate against you based on your age or life expectancy. However, you may find it harder to qualify for a loan with your retirement income since your retirement income may be lower than your working income. Instead, you need to prove a consistent monthly income from your various retirement funds. You'll also need to prove that you’ll continue to receive certain types of income at that same level of income for at least three years.
  • Downsizing in advance could help you take advantage of the equity you have in your current home. You may be able to make a larger down payment on a retirement property if you’re able to sell your current home now. You may find that you also have enough money left from the sale of your current home to put towards your retirement funds. That money could be out toward fixing up your retirement property.
  • Buying your retirement home before you retire may be useful for future financial planning. You'll have a clear idea about your monthly housing expenses, which can help you make better decisions about retirement planning. Plus, you can take advantage of low interest rates to lock in an affordable monthly payment. Low payments now could help you put more money into your retirement fund later on.

How to buy a home after retirement

It's possible to get a mortgage after you retire. A lot of the qualifications will be the same, including good credit, a steady income and a low debt-to-income ratio. Some qualification processes will look different, though. The biggest difference will be how you prove your income.

Establishing your income to qualify for a mortgage after retirement

If you've retired, your income likely comes from a variety of sources including Social Security, a 401k, Roth IRA account or a pension. While all these provide income, some of them are consider finite income sources because they’re depreciating assets. Most lenders will ask you to prove there’s enough money in these accounts to provide a stable income for at least three years. Most lenders will allow you to use the income from social security, trust distributions and other assets to calculate your qualifying income.

How does the qualifying process differ when buying a retirement home?

The rest of the homebuying process will look a lot like it does for someone who’s still working. You'll need to make an offer on a property, qualify for the mortgage and attend the closing. Consider working with a lender who has experience working with retirees. They’ll know what your options are when it comes to qualifying for a loan, and be able to advise you about available mortgage options.

Buying a home at any stage of life is a big commitment, but working with a Home Lending Advisor can help make the process easier.

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