Buying a Home: Before or After Retirement?

For the Home

A move to a smaller home is a positive lifestyle and financial change all empty-nesters and retirement age individuals should consider. While there are many fond memories of the house in which you raised your family, it’s time to think about your own needs as you approach a new phase in life.

Many people dream of buying their ideal retirement home after their career has concluded. However, many real estate professionals advocate for clients to find a retirement property before they are off the payroll. There are significant financial benefits to purchasing your retirement home before you retire.

Here are a few things to think about

If you wait until you are no longer working to buy your retirement home, you may not have the income to qualify for the mortgage you need. Having an income can also alleviate financial stress should you run into any unexpected costs after closing. Plus, buying a new home while you have an income provides you with more financial flexibility.  Especially if the home you select needs upgrades or renovations.

It is sometimes tough to predict the ongoing expenses related to a new home. If you buy the property before retiring, it gives you time to get used to the true amounts of your monthly home expenses.

Buying before can also help ensure that you have enough saved to retire and live comfortably. You’ll also be in a better position to make necessary adjustments.  Creating a financial plan will also be easier once you know the reality of owning your new home.

Lastly, many people purchase a retirement home before they retire and use it as a rental property until they are ready to move in. This will not only help cover mortgage payments but is another way for you to see firsthand what the monthly expenses are for the property.

Depending on where you want to retire, the rental property can also be a fun vacation home before you retire. Sometimes it’s easier to see the good life ahead if you can experience it in small doses before it’s time to retire.

If your circumstances prevent you from buying before you retire, don’t despair. It is possible to get financing to purchase a home after retirement. Even if you have the cash on hand, that may not be the best scenario from a financial perspective depending on your lifestyle requirements. As a retiree, your required down payment can vary depending on the income method used.

But there are many options on methods to finance a home if you need to make it happen later in life. Two of the ways are drawdown from retirement and asset depletion.

Asset Depletion

For retirees with a lot of invested assets, the asset depletion method of determining income may be the best option. With this method, the lender starts with the current value of financial assets. Then, subtracts any amount used for the down payment and closing costs. Lastly, the lender divides a percentage of the remainder by the length of the loan. You should plan on higher down payment with this method, typically 30%.

Drawdown From Retirement

This option is for retirees who are now retired but are delaying the start of Social Security or pension income.   The most favorable option is using a drawdown on assets method of establishing income. If the borrower is at least 59 ½ the lender can use recent withdrawals from retirement accounts as proof of income. Sometimes the lender will need a letter from the financial institution confirming these withdrawal amounts. For the drawdown in the retirement method, you can put as little as 5% down.

Your unique financial profile and personal goals impact what is best for you.  It is essential to select a financial partner who has experience with retirement lending. Let us make this easy. Call 888-508-2228 to schedule an appointment or visit for more information.