The 4 Biggest Mortgage Mistakes Retirees Can Make
by Maurie Backman | Published on Sept. 3, 2021
Older home buyers need to steer clear of these costly blunders.
Buying a home is something that can be done at any age, so it's not unusual for retirees to apply for a mortgage. But if you'll be applying for a home loan as a retiree, here are four mistakes you should try to avoid.
1. Taking on an expensive mortgage on a fixed income
Some retirees live on a combination of Social Security and pension payments. Others have personal savings accounts they can draw from. But either way, one thing you should know is that your healthcare costs may rise once you're retired. So it's important not to take on too much house so that you have enough money left over to cover your medical expenses plus your remaining bills.
As a general rule, it's a good idea to keep your predictable monthly housing costs to 30% of your take-home income or less. As a retiree, you may want to be even more conservative and stick to a 20% or 25% threshold. And remember, when we talk about housing costs, it's not just your mortgage to account for. You should also factor in other expenses of home ownership, such as property taxes and homeowners insurance.
2. Not checking your credit score first
The higher your credit score, the more likely you'll be to qualify for a low interest rate on your mortgage. And that could, in turn, help keep your monthly payments more manageable. If your credit score could use some work, make a point of paying all incoming bills on time and pay off any credit card debt you may have.
Checking your credit report for errors and correcting them could also help your score improve quickly. Unfortunately, seniors often fall victim to financial fraud, and if someone opens a credit card in your name and racks up charges against it, it could damage your credit. Reviewing your credit report will help you determine if there are accounts in your name that aren't valid.
3. Forgetting about maintenance
Your ability to maintain your home may change as you age, and if you have to go from doing things yourself to outsourcing them, you could end up spending a lot more money on upkeep. Be sure to account for this when you buy your next home, so you're not left with expenses you can't cover.
4. Ignoring HOA fees
It's common for retirees to settle down in a condo or townhouse because there's generally less maintenance involved. But when you move to one of these homes, you'll almost always be on the hook for homeowners association (HOA) fees, which can be costly. Make sure you know what fees you're looking at before buying a home and what services you get in exchange for paying them. Also, factor those fees into your monthly housing costs to make sure that total figure is still below 30% of your income.
No matter what stage of life you're in, it's important to be strategic when buying a home and taking out a mortgage. Avoid these mistakes so they don't ruin your ability to enjoy retirement to the fullest.
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