“Many renters believe they will never be able to buy their own home because of insufficient credit. We can responsibly expand mortgage eligibility by including positive rent payment history in underwriting risk assessments” Hugh R. Frater, Fannie Mae.
Homeownership, A Retirement Resource
You might not have noticed but, surprise, we are all getting older. The “typical” retirement age is looming for some, years off for others. You might dread it, plan to postpone it indefinitely or can hardly wait for the day. But will you be prepared for it? It is rare for a retired person to claim they started planning too early.
If those constant emails from AARP are already hitting your real and virtual mailboxes, it is past time to start thinking about the decisions that you will need to make. You can’t control all that will happen down the road, as many an older worker can relate about their well laid retirement plans pre both the Great Recession and the pandemic, but you can give it your best shot.
Time on Your Hands
How will you maximize the perks of that hard-won endless vacation?
What if waving goodbye to your job is less of a relief than you expect; eight or nine hours every day is a big hole to fill. If you don’t have hobbies you enjoy or new interests you are hot to pursue, this is the time to develop some. We have all heard the stories about a retirement that lasts three weeks before the retiree starts looking for a new job-or his/her spouse insists on it.
Where will you go, or will you stay put? Aging in place as it is called is probably the least intrusive and potentially the least expensive housing option. But questions immediately arise. What if your existing home is more suitable to raising a young and energetic family than to living comfortably while coping with the many physical challenges that seem to arrive with each birthday? The yard work and ongoing maintenance might be hard to manage or cut too deeply into that precious golf time, travel plans, or visits with grandkids.
You could downsize and age in a new place; a house, condo, or apartment that is more manageable and suitable to the task. Maybe one in the same neighborhood, allowing you to shop at familiar stores, use your long-time service providers, and stay in touch with your social circle. You might want to move closer to your family or choose a house in a retirement community. With any luck, you might find something that satisfies all your criteria.
It’s the Boomers, Again
While retirement communities used to be a staple of jokes about Florida, they are now popping up everywhere. Developers have built hundreds of them over the last 20 years in anticipation that Baby Boomers would live longer and healthier (and potentially wealthier) than earlier generations. They cover the range of lifestyle choices, from single-family golf or tennis communities in the sunbelt, to high rise condo complexes in chic urban areas. They are designed for the active adult and, as they are often limited to residents over the age of 55, to empty nesters.
Of course, there is no guarantee of good health at any age, so another choice might be an independent living situation. These communities, again with age limits at the lower end, cover all the bases. Move in while in excellent health, enjoy the activities—from trips to the race track or theatre tickets to cocktails around the pool—arranged by the resident concierges or property managers. Condo fees (or rents) typically include housekeeping and laundry services, and there is staff to assist with small emergencies, whether medical or a desire to rearrange the furniture. Most have amenities that include a well-equipped gym, a white linen dining room, and meeting rooms for out-of-unit entertaining. Should the time come when a resident can no longer live independently, these facilities offer both assisted living and skilled nursing options on site.
There’s Always a Bottom Line
While choices for retirees as well as seniors who keep working well into their advanced years have increased dramatically along with the aging population, they come at a cost. Ironic, as the need to decide among them usually coincides with a dramatic drop in (or disappearance of) earned income.
This synchronicity shouldn’t come as a surprise, but then weren’t we assured that pensions, IRAs, 401 Ks, Social Security, Medicare were all going to pave the way into our Golden Years? That worked out for many, but others saw their employers fail and their pensions disappear or watched the Great Recession wipe out their stock market based plans or erase their home equity. Sometimes, health concerns or the economy forced early retirement. The safety net is still out there but Social Security and Medicare have been hard pressed to keep up with inflation. Even many Millennials, the oldest of whom turned 40 this past year, will have to scramble to make up for their early years of underemployment during the Great Recession not to mention a sometimes huge burden of student loan debt.
A Matter of When
And speaking of Social Security, among the non-housing decisions about-to-be retirees will need to make is when to do it. This matters. We bandy the number 65 about as though there is some rule that says that’s when it happens. It is, however an increasingly arbitrary figure, one selected years ago, when the average life expectancy wasn’t much longer than that. Sort of a “Here’s your gold watch, enjoy the next few weeks” retirement. With that lifespan pushing toward 80, not only do we have to save enough to cover what could be a quarter century of retirement, but the timelines have also shifted.
The Social Security Administration now says that 66 is the full retirement age for most people and it is 67 for those born in 1960 or later. However, a worker can make an initial claim at age 62 for a smaller benefit or wait until age 70 for a larger one. AARP says a person born in 1959 who has earned an average of $50,000 per year would get $1,264 per month by filing for Social Security at 62, $1,785 at full retirement age, or $2,237 at age 70.
Millennials tend to have higher expectations than older homeowners did about their ideal starter home. A recent survey asked more than 1,000 consumers about the features and amenities they most wanted in their first home. With each generation, the house grew—from 2,950 sf for Boomers to 3,220 sf for Millennials. Also increasing generationally were the number of bedrooms and baths.
They all agreed that the top feature was air conditioning, followed by a private back yard. Over 60% of respondents felt each was essential, while more than half wanted a lot of storage and plenty of natural light. “Starter Home Sentiment”, Clovered
There are dozens of online financial calculators that can tell you how much in savings you will need to retire at various ages without a significant reduction in lifestyle. Fair warning, the bottom line will be terrifying. If you haven’t been saving diligently, now is the time to start. It could also be time to start reducing your lifestyle a bit and socking the resulting savings away.
Luckily, homeowners have another resource. With proper planning, owning a home can be a valuable asset for retirement; one that multiplies the options.
Aging in Place
If your plan is to age in place, start as soon as possible to do the modifications that will be needed. With years to accomplish such adaptations as widening doorways, replacing carpeting with more navigable flooring or the tub with a walk in shower, you can research to find the best products, wait for sales, or take advantage of those periods of interest free credit the big box stores offer periodically. A leisurely renovation spreads out costs and increases the likelihood you might DIY some of the work.
ROUND ‘EM UP! RIDE ‘EM OUT?
The high price of wood products has brought a new crime wave to North Texas – lumber rustling.’ The thefts are adding to the struggle for home builders trying to keep housing costs down while facing building permit delays and staffing shortages.
One homesite was hit four times after the builder installed a camera, three after the thief cut the wires. The rustler was spotted by a neighbor stuffing the goods into a four – door sedan.
Another perp found a hidden tracker inside the lumber and removed it before staling tens of thousands of dollars in materials. Another left a bit of graffiti behind for the builder. It said, “Thanks for the wood.” KDFW News
Now Might Be the Time
You probably won’t find a better time than now to refinance with cash out, to both lower your rate and spread the payment out over 30 years. But do it smart. Put the equity you liberate in a safe place like a savings account, or Treasury Notes, then add in your monthly savings from the new, lower payment. The interest on your investment will offset some of the interest you will pay on a larger loan, and eventually you might even get a higher yield than the (fixed) interest rate you will be paying.
Or, if you plan to downsize, why wait? Home prices rarely go down. Find that perfect smaller home and use the cash out to purchase and rent it out until you are ready to occupy it. Compound the benefit by finding a house with an accessory dwelling unit (ADU) or the potential to add one-that way there will still be some rental income even after you move in. Then too, the reverse could work; move into the smaller home and rent out your empty nest.
Granny’s Granny Flat
How about adding an ADU to the house you currently own; zoning is permitting it in more and more locations. It will increase the value when you do sell and provide rental income in the meantime. Ultimately it could even provide the perfect downsizing solution. You could end up moving into the ADU when you downsize, renting out your former home to subsidize the whole shebang.
The various housing choices we mentioned-retirement communities, a smaller house, independent living— could be significantly more affordable in locations other than your current one. Housing costs are generally less in the Midwest and South than in the West or Northeast and also tend to be less expensive outside of metro areas, although there the choices may be limited. This is an easy one to research on line, then plan a pre-retirement vacation around the most interesting possibilities.
Some potential homebuyers, especially first timers, may be getting a boost in their credit profiles. On September 18, 2021 Fannie Mae began using consistent rent payments to qualify applicants for a mortgage.
With borrower consent, Fannie’s computerized underwriting system will automatically identify recurring rent payments from applicants’ bank statements. It can spot payments made both by check and electronically and will ignore missed or inconsistent payments without penalizing the borrower.
Fewer than 5% of renters have their rent reported to credit bureaus, putting many first time buyers at a disadvantage. The company estimates that 17% of recently failed applications would have been approved if their rental payment history had been considered. MortgageNewsDaily
Footloose and Fancy- Free?
Finally, if you are adventurous, a house on wheels might be worth exploring. Some motor homes and fifth wheels are amazingly luxurious, and while gas and campground fees can eat up retirement savings as quickly as a house payment, think of the perks. You can follow summer around the country or see all the sites you promised yourself you would. Visit the kids or old friends with your own hotel room parked in the driveway in case too much togetherness sets in. But don’t burn all your bridges before you hit the road. Put some furniture in storage, rather than on Craig’s list or lease out the old homestead for a year. Long term road warriorship isn’t for everyone.
If it isn’t clear by now, retirement takes a lot of thought. If you are going to refinance, buy a different home, or sell yours and rent, you want to have your ducks lined up before the big day when your income might potentially drop or at the least become harder to document. If you have a financial advisor, good for you, but also schedule a chat with your loan officer and your real estate professional about timing whatever you plan to do about your current or your next home.
…Because, even without a gold watch, time flies. Contact Clark Smith at 949-494-8830 for an update on the real estate market.