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Affording Your Home in Retirement

Costs of Home Ownership in Retirement

Staying in your home after retirement is a comfortable choice, but it isn’t always affordable. A growing number of retirees spend more than 30% of their incomes on housing, with 41% still carrying a mortgage at ages 65 to 79, according to a 2023 Harvard study. An analysis by T. Rowe Price showed that the most common unplanned major expense was home repair, nearly five times more common than medical expenses.

Evaluating Your Mortgage and Finances Going Into Retirement

Can you afford to stay in your home when you retire? The answer depends on your individual situation: how much you have in retirement savings and income, minus what you might have to spend on mortgage payments, property taxes, home insurance, upkeep, renovations, and repairs. If you’re retired or hoping to be soon, now is the time to plan, so that housing costs don’t catch you by surprise down the road.

Can You Pay a Mortgage in Retirement?

If your goal is to spend less than 30% of your monthly income on housing, compare your mortgage payment plus property taxes, insurance, and routine maintenance to your projected monthly inflow. Where do you stand? Also, consider how much longer you have left on your mortgage. If you only need to make mortgage payments for the first few years of retirement, that’s easier to manage than 20 or more years of monthly payments.

What Are Your Costs Beyond a Mortgage?

In addition to your regular housing costs, expect to spend a significant amount on repairs. A survey by home insurance company Hippo found that 77% of homeowners dealt with an unexpected issue that needed repair within the first year of homeownership. More than half of those repairs cost between $1,000 and $5,000. As a retiree, you probably aren’t in the first year of homeownership. But, if your home is older and more well-worn, you may be even more likely to incur a large expense.

Is It Better to Cash In?

When weighing the costs of owning your home in retirement, consider the alternative. If you sell your home, you get to walk away from the responsibility of maintaining a house. You may also end up with a tidy profit that can add to your retirement funds. On the other hand, you’ll have to figure out a new place to live—and that’s likely to cost money.

6 Strategies for Affording Your Home in Retirement

1. Pay Down Debt

Interest costs and monthly payments on debt are more difficult to afford on a reduced, fixed income. To the best of your ability, pay down as many debts as possible before you retire, including your mortgage.

2. Build Up Your Savings

To avoid pulling extra money out of your retirement fund to cover essential home repairs, try to create ample savings in advance of retirement. When setting your retirement budget, try to resist allocating every dollar you earn to expenses: You’ll appreciate having a cushion.

3. Make Big Repairs Now

Before you retire, make a list of potential repairs and check as many off the list as possible. You may not be able to pull off a totally repair-free retirement, but you may head off some big expenses you know are in your future, like a new roof or replacing your washer and dryer.

4. Get Creative About Income

Consider a part-time job or think about ways you might earn a bit of extra money in the short term if you need it. Take on a small consulting project, sell some of your stuff, consider renting out your garage space, or explore ideas for creating passive income. This could help you bridge the gap of paying for a big repair without having to borrow.

5. Get Help

Seniors may be eligible for financial help, discounts, grants, or loans from a variety of sources. Here are a few ideas to consider:

• Your local government may offer property tax relief for seniors.
• If you need financing for an essential home repair or improvement, you may be eligible for an FHA Title I loan, which provides government backing for loans of up to $25,000. Or, you may be able to bundle renovation costs into a refinance of your existing mortgage with an FHA 203(k) loan.
• Check with your state housing finance agency or community development groups in your area for help with necessary repairs and aging-in-place home modifications.
• Contractors may offer senior discounts or financing that can save you money or make it easier to pay for needed repairs.

6. Consider a Reverse Mortgage

A reverse mortgage lets you tap into your home equity to receive a lump sum, monthly payments, or a line of credit. You’re charged interest on the amount you borrow, but you typically don’t make payments on your loan until you sell your home. To qualify for a reverse mortgage, you must be at least 62 years old and either own your home free and clear or have a small mortgage balance. A reverse mortgage has pros and cons, so research the details thoroughly if you’re considering one.

Exploring Your Housing Options

If owning and maintaining your home sounds overwhelming, what are your alternatives? Here are a few:

• Sell your home and downsize: If you sell your home and buy a new one for half the price, you might be able to pay for your new place outright and pocket a few dollars to boot, even after paying off your mortgage and covering commissions and closing costs.
• Sell your home and rent: You can use the proceeds from a home sale to bolster your retirement savings or income. Renting gives you plenty of flexibility on where you live and doesn’t come with potential repair costs. Downside: While you may eventually pay off a mortgage, rent is forever and may increase over time.
• Keep your home and rent it out: If you want to keep your home in the family, consider renting your current home out and renting yourself a new place with the income you take in.
• Move in with family or friends: In the Harvard study, 10.9 million adults ages 65 and over—about 20%—lived with at least one adult relative of another generation. Although it may not work for everyone, intergenerational living or moving in with friends can save you money on housing costs and may offer a source of social and emotional support as well.

The Bottom Line

Housing costs are a growing financial challenge for retirees, one that requires careful planning and flexibility both before and during retirement. Increasingly, retirees may need options, which may include access to new mortgages, refinancing, or home improvement loans. To help maintain your credit in top shape, you may want to consider free credit monitoring from Experian. You’ll get access to your credit score and report and receive regular reports and alerts to stay on top of your credit.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We are here to help you navigate your options and find the best solutions for your retirement housing needs.

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