Buying a Home in Retirement
Quick insights
- Buying a home in retirement can make sense if it supports your lifestyle and fits your retirement budget.
- Qualifying for a mortgage after retirement doesn’t tend to have unique requirements. Mortgage lenders will likely evaluate all income sources, including Social Security, pensions, retirement account withdrawals and investment income.
- Buying your retirement home before you stop working may make financing easier. However, waiting until after you retire gives you more flexibility if your housing plans are still changing.
Retirement often brings the freedom to rethink where and how you want to live. For example, maybe you’re looking to downsize, move closer to family, relocate to a warmer climate or find a home that’s easier to maintain. Whatever your plans are, knowing your financing options could help you decide when and where to purchase your next home.
Buying a house in retirement is a major financial and lifestyle decision. Compared to other times in a homebuyer’s life, the monthly budget, long-term income and healthcare needs are some distinct considerations. Weighing the benefits and potential tradeoffs can also help you decide whether getting a mortgage in retirement, or before, is the right fit for your next chapter.
How does a retirement mortgage work?
The process is similar to applying for a mortgage at any other stage of life. Mortgage lenders evaluate factors such as your credit score, debt-to-income ratio, assets and down payment. They’re interested in verifying that you have reliable income to cover your monthly mortgage payments. Depending on your financial situation, income may come from Social Security benefits, pensions, retirement account withdrawals, investment income or other qualifying sources.
While the mortgage application process is similar, retirement income is documented differently than employment income. Providing proof of consistent income and assets can help demonstrate that you have the financial resources to repay the home loan.
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 a 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 could know your exact monthly income. If you haven’t retired yet, you may want to consult a professional to confirm the income you can expect to bring in. This helps determine how much home you can afford in retirement. Even if you’re paying for a property outright, you could still have ongoing expenses, such as maintenance, HOA fees, taxes and insurance to cover.
- What care needs are you likely to have in the future? Health is important, but the related expenses may be unpredictable. However, you could imagine ways that your needs may change as you get older and use that to explore homes. You may want to live somewhere that suits those needs now or can be retrofitted when needed.
Housing options after retirement
Once you have a clearer picture of your wants and needs in your retirement years, it’s time to narrow down where you want to live. Retirees may have a variety 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 and move into something smaller or more manageable. Downsizing may allow you to use your current equity to buy something less expensive, potentially lowering your monthly mortgage payment. When downsizing, you could still choose a home that suits your needs, even if they might change—one with fewer stairs or senior-friendly bathrooms, for example.
- Pro: May help you get money from the equity in your home to use towards a new home or to boost your retirement income.
- Con: Locks you into a property when you may want more flexibility in your retirement years.
2. Staying in your current home
People approaching their retirement years may do what’s called “aging in placeOpens overlay.” This means staying in their current home and adapting it to their needs as time goes on. When you love your home, this may be a first choice. You might also know your home’s maintenance requirements well and can plan for them. There may be new maintenance or renovation costs to consider, though. They could include retrofitting for your changing needs and paying someone to do the things you may no longer be able to do yourself.
- Pro: You get to stay in the home you already know and love.
- Con: Maintenance and renovation costs still call for careful planning.
3. Renting a retirement home
If moving is still appealing but buying a home for retirement seems less so, you may want to consider renting a retirement home or apartment. This might make more sense for your lifestyle and finances. Renting means you may not have to deal with maintenance issues, for example. Renting can also give you more flexibility to move around, depending on lease terms.
Keep in mind that landlords can raise rent or ask you to vacate. This can make renting less stable than owning a property, which may lock in your monthly mortgage payment and help you budget long term.
- Pro: You may be able to move more easily and not worry about maintenance issues.
- Con: May not provide the same long-term stability as owning a home.
Pros and cons of buying a home after retirement
Buying a home after retirement can offer the opportunity to create a living situation that better matches your lifestyle, but it’s important to balance the advantages with the financial realities of living on retirement income. Take into account both the potential benefits and challenges to help you make a more informed decision.
Pros of buying a home after retirement
- You can choose a home that better fits your retirement lifestyle. Buying after retirement gives you flexibility to prioritize your current and future needs. Whether you want a different type of home than you live in, a smaller one or a community with amenities for older adults, buying unlocks various possibilities.
- You may be able to use equity from your current home. If you’re selling your existing home, the proceeds could help fund your retirement home purchase. This financial resource could set you up to have a monthly mortgage you can manage or buy property outright.
- Your housing costs may become more predictable. Whether you purchase a home with a fixed-rate mortgage, pay in cash or use another option, you can estimate housing expenses with some accuracy. This could make it easier to build and manage a retirement budget.
- You can relocate based on your retirement goals. Buying a home for retirement may give you the flexibility to move closer to family, enjoy a lower cost of living or settle in an area with the climate and lifestyle you’ve always wanted.
Cons of buying a home after retirement
- Qualifying for a mortgage when retired may require more documentation. While mortgage lenders cannot deny a loan based on age, they will still want to verify reliable income from sources. Those may include Social Security, pensions, retirement account withdrawals or investments. Lenders want confidence that you can afford your monthly mortgage payments.
- Your retirement income may be lower than your working income. A reduced monthly income could affect how much home you can comfortably afford or how much you qualify to borrow. This could affect the range of home prices that are considered affordable.
- Unexpected homeownership costs can impact your budget. Property taxes, homeowner’s insurance, maintenance, repairs and HOA fees can add up. They’re also subject to change and may become difficult to manage on a fixed income.
- Buying later in retirement may not align with your long-term plans. If you expect your housing or healthcare needs to change in the coming years, the costs of buying and selling a home within a relatively short period may outweigh the benefits.
How to buy a home after retirement
Purchasing a home after retirement is similar to buying a home at any other stage of life, but you will likely need to provide different financial documentation. Mortgage lenders still review your credit history, income, assets and liabilities to determine whether you qualify for a mortgage. Following these steps may help you prepare for the homebuying process.
1. Determine how much home you can comfortably afford
Start by reviewing your retirement budget and deciding how much you can realistically spend on housing. In addition to your monthly mortgage payment, it’s important to factor in property taxes, homeowner’s insurance, utilities, maintenance, repairs, HOA fees and healthcare expenses. Choosing a home that fits comfortably within your long-term budget can help you maintain financial flexibility throughout retirement.
2. Plan for your current and future housing needs
What works today may not in the future—housing needs may change over time. Features such as a single-story layout, minimal or no-step entryways, wider doorways and accessible bathrooms may make it easier to live in your home as you age. You may also want to choose a home that requires fewer repairs or is located closer to healthcare, family or everyday amenities. Planning can be a unique process for everyone.
3. Organize your retirement income and financial documents
Unlike working borrowers who primarily use pay stubs and W-2s, retirees may receive income from multiple sources. Gather documentation for Social Security benefits, pensions, retirement account withdrawals, investment income, annuities and other qualifying income. Lenders typically ask for bank statements, retirement account balances and other financial records.
4. Strengthen your financial profile
Before applying for a mortgage, you may want to review your credit report, pay down debt and avoid taking on new loans or opening additional credit accounts. Lenders evaluate your credit score, debt-to-income ratio (DTI) and available assets. This helps determine whether you qualify for a mortgage and what loan terms you may receive.
5. Get preapproved and begin your home search
A mortgage preapproval gives you an estimate of how much you may be able to borrow based on your financial profile. Once you are preapproved, you can confidently shop for homes within your budget and make stronger offers when you find the right property. Depending on your financial goals and eligibility, you may also want to compare different financing options, including conventional mortgages and specialized loan products such as a Home Equity Conversion Mortgage (HECM). A HECM is a type of reverse mortgage available to eligible homeowners age 62 or older that can help meet certain retirement financing needs.
Reverse mortgages have specific eligibility requirements, costs and repayment terms, and may not be appropriate for everyone. Product availability and requirements vary by lender; consider speaking with a qualified professional about your situation.
At this time, Chase does not offer reverse mortgages.
Establishing your income to qualify for a mortgage after retirement
Retirement income often comes from several different sources rather than a single paycheck. When reviewing your mortgage application, lenders want to verify that your income is reliable, sufficient and likely to continue. The exact documentation you will need depends on where your income comes from.
Common sources of retirement income include:
- Social Security benefits: Lenders generally accept Social Security income as long as you can provide benefit award letters or bank statements showing regular deposits.
- Pensions: Pension payments may qualify as income if you can document the amount you receive and show that the payments are expected to continue.
- 401(k) and traditional IRA withdrawals: Because these accounts are funded from savings, lenders may ask for account statements and documentation showing there’s enough money available to continue supporting your withdrawals. In many cases, they will want to see that the funds can provide income for at least three years.
- Roth IRA withdrawals: Qualified Roth IRA distributions may also be considered, depending on the lender’s guidelines and your withdrawal history.
- Investment income: Interest, dividends and other investment earnings may count if they’re well documented and expected to continue.
- Annuities: Regular annuity payments may be used to qualify if you provide documentation showing the payment amount and duration.
- Trust distributions: Income from trusts may also qualify when supported by trust documents and a history of consistent distributions.
- Rental income: If you own rental property, lenders may allow some or all of the rental income to be included. As with other income, the lender will probably have specific requirements and request documentation.
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.
In summary
Buying a home during retirement gives you the chance to create a living situation that better matches your lifestyle. This major decision could mean downsizing, moving closer to family or finding a place that's easier to maintain. The mortgage process works much like it does at any other stage of life. Lenders review your credit score, income, assets and debts to confirm you can comfortably cover your monthly payments.
Retirement income often comes from several sources rather than a single paycheck, so you’ll likely need to provide different financial documents to verify that your income is reliable and likely to continue. Weighing both the benefits and the tradeoffs can help you decide whether buying, renting or staying in your current home is the right fit for your next chapter.
Buying a home at any stage of life is a major commitment, but working with a Home Lending Advisor can help make the process easier.
