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Buying a new home in retirement: Pros, cons and weighing your options

Anna Serio-Ali
Updated
Buying a home in retirement (MTStock Studio via Getty Images)

Where you decide to live during retirement can have an enormous impact on the kind of life you lead after your career. Buying a new house or apartment can offer a way to be closer to friends and family, stay independent and get the most out of your retirement savings. If you currently rent, buying a home may also offer financial stability and peace of mind.

Before you buy a new home, consider how you want to live and what you can afford — and how that place will serve you in the coming decades. In some cases, you might find that staying in place or even renting might be a better choice for your particular needs.

Buying a home will inevitably affect your retirement years. Weigh these key factors to get a sense of what to look for in a new house or condo.

Perhaps the most important factor to consider is how you want to spend your time — and who you want to spend it with. Do you want to live near your extended family? Spend time with other retirees or be near people who share similar hobbies or interests? Travel the world? Tend to a quiet garden in the countryside? You don’t necessarily need to commit to one or another. Many retirees have two homes: one near family and another in a retirement community or more secluded area for the best of both worlds.

Having a vision of what you want your life to be will inform not only where you live but also what type of home to look for. Travelers, for example, might want to invest in a smaller home or apartment with minimal costs and maintenance. On the other hand, those seeking the company of peers might want to consider moving to a retirement community.

Once you have a sense of how you’d like to spend your time, learn how much you can afford. Before you start shopping around, figure out how much of a down payment you can make on a home and whether you have enough income to cover regular expenses, such as mortgage payments, insurance premiums, and HOA or condo fees. Also consider the cost of moving — long distances can set you back anywhere from $1,000 within your city to more than $14,000 for a long-distance move.

Another financial factor you might want to consider is how state taxes in the area where you plan to move might affect your income. States like Washington, Wyoming and Florida don’t have state income tax, while others might require you to pay taxes on your Social Security income. The majority of states don’t charge an inheritance tax, meaning you’ll be able to pass on more of your wealth to your family. While the extra income may be nice, low-tax states may not have the resources to offer services available to folks over 65, so take that into consideration as well.

This is where hiring a retirement advisor can be helpful. A trusted expert can help you not only understand how to pay for a new home, but also how to manage your money during retirement in general.

Consider how much physical work you’ll need to put into a property before you buy it. Owning a home typically means that you’re responsible for maintenance — especially if you live in an area with an HOA. While you can hire professionals to fix a broken boiler, mow the lawn and clean the gutters, it isn’t necessarily cheap.

Condos often require less work, since they typically have some kind of maintenance staff on site. Condo owners pay a monthly maintenance fee to cover shared services but may have to pay extra for maintenance on a specific unit.

If you intend to age in place, also factor in how easily adaptable a property may be to future medical issues. For example, how much of an investment might you need to make in improvements if you or your spouse need mobility assistance? What other improvements might you need to make as you get older?

Buying a home is generally less risky than renting in retirement, since the cost of rent can be more volatile than home ownership. But it’s not without risk, especially if you don’t have the funds to buy outright. While it’s true that borrowers over 50 have the lowest rate of mortgage delinquency out of any other age group, according to the Federal Reserve, debt is still a burden you might not want to carry through retirement.

After you come to a rough idea of what you want from a retirement home, consider your housing options. It may be a good idea to narrow it down to a few before you set out to look for a home — if you decide to buy one — so you have a wider pool to choose from.

If you already own a home, aging in place may require the least investment when it comes to time and money. If your home is already conducive to the lifestyle you’d like to have in retirement, take stock of how much you’d need to improve your home to accommodate potential medical needs.

Think about high-level additions that can keep you safe and independent:

  • Bathroom — grab bars, walk-in shower, easy-to-use faucets and controls

  • Kitchen — pull-out shelves and lazy Susans for reach, side-by-side refrigerators, easy-to-read cooktop and surface lighting

  • Flooring and stairs — slip-resistant flooring, low thresholds to eliminate tripping hazards, sturdy handrails, stair lifts and chairlifts, other assistive devices

  • Lighting and electrical work — light switches at entry and exit points, height-optimized electrical outlets, home automation systems or smart home devices for lighting, temperature and security features

Even if you aren’t planning to stay in your current home, it can be useful to have an estimate of the maintenance and improvement cost as a baseline to compare against other options. Start with our guide to the top renovations for property value and quality of life as you age.

Many retirees find their current home is simply too big for them, especially if they have grown kids or extensive maintenance requirements. Moving from that five-bedroom house on a corner lot to a smaller home often just makes sense after you’ve left the workforce. Downsizing is particularly practical if you plan to travel or split your time between two different places. If you already own a house or apartment, you may be able to use the money from selling it to pay for your new place — or new places — up front.

There are a few different routes to consider when it comes to downsizing:

  • One- or two-bedroom houses can be a good option for folks who still want the feel of a traditional house without so much empty space. However, these can be particularly hard to come by in the 2024 housing market. Many retirees find that the price of a smaller house is actually higher than the value of their current house, due to elevated demand and limited supply.

  • Condos can be a good choice for folks who plan to travel, especially if you live near or in an urban area. In addition to weighing the costs, consider the amenities available to residents that could make it easier to stay in your own home for as long as possible.

  • Retirement community housing includes standalone houses and condos. These typically have higher costs per month but come with retirement-friendly amenities, such as property maintenance and convenient access to health services.

  • Tiny homes and accessory dwelling units (AUDs) are a good budget option for those who don’t need much space. Not only is the sticker price for this smaller living arrangement lower than your typical house, but the cost of maintenance and utilities is often significantly lower. But it’s not ideal for aging in place, since many require climbing stairs or a ladder to get to a loft.

  • Buying an RV can be a good investment if you want to travel around the country or chase the warm weather. Few people live out of an RV full time, and it may not be a long-term solution — but investing in an RV can make travel less expensive if your bucket list is full of places you’d like to see on the road.

  • Moving in with family is a time-honored tradition in most cultures — and may be the most financially frugal option. But it can also be emotionally tricky, especially if you aren’t already close with your loved ones or differ significantly when it comes to personal values or how to run a household.

Buying a home in retirement is a lot like buying a home at any other stage in life. If you can pay in cash, the process is essentially the same: After getting proof of funds from the bank, you shop around for a house, work with a real estate agent to put together an offer and work with a settlement agent for the closing and title process.

If you plan on selling your current home to buy a new one, you don’t necessarily need to wait for the sale to make that purchase. Instead, you can take out a home equity loan or line of credit to finance a down payment on your new place and use the sale proceeds to pay off the equity financing. Some people prefer this option because it offers more flexibility when it comes to closing and moving dates.

If you can’t fully pay for your new home with cash or equity, you’ll need a mortgage. Financing a home adds an additional step to the process. Before you apply for a mortgage, make sure you meet the lender’s requirements. Typically this includes a down payment of at least 20%, a credit score over 670 and a debt-to-income ratio under 43%. Though it’s possible to find financing if you don’t meet these requirements, you can expect to pay higher-than-average interest rates.

Dig deeper: Can you use a home equity loan to buy a rental or investment property?

? What counts as retirement income for a mortgage?

When you’re retired, mortgage lenders view your income a little bit differently than they would for someone working full time. If you’re partly living off retirement accounts, you’ll need to be able to prove that there’s enough money in your retirement accounts to help cover loan payments through the end of the term. Other types of retirement income — such as Social Security, annuities and trust distributions — also count toward your income.

The good news is that your retirement income might actually count for more than you think. That’s because mortgage lenders typically “gross up” certain types of nontaxable income when calculating your DTI — by as much as 25%, depending on the type of mortgage you get. This includes Social Security, nontaxable retirement income, military allowances and more.

With Social Security it can get a little complicated, since you may only pay taxes on part of your Social Security income. When it comes to mortgages, lenders generally consider 15% of your Social Security income to be nontaxable. So, if your Social Security check is $2,000 a month, lenders will consider $300 of that $2,000 as not taxed. This means that your $2,000 monthly Social Security check can count for as much as $2,075 in the eyes of a mortgage lender.

Dig deeper: States that tax Social Security benefits — including changes for 2024

You can expect that housing costs will take up a significant chunk of your retirement budget, whether you own a home or plan to rent. But while home ownership offers stability and predictability when it comes to your monthly budget and where you live, the costs of maintaining and protecting your home can be significant — costs you’re not on the hook for as a renter.

Yet unless you find a place that is rent-controlled or rent-stabilized, renters are vulnerable to dramatic rent increases, depending on the tenant protections where you live. Your landlord may also have the right to refuse lease renewal, forcing you to move at an inopportune moment.

Homeowners with mortgages can also qualify for tax break on interest paid, which may push your itemized deduction above the standard deduction. Some states offer additional tax breaks to homeowners — such as New York State’s property tax deduction for low-income residents over 65. These breaks aren’t available to renters.

However, renting has other benefits over homeownership. For one, your assets aren’t tied up in the place where you live, and moving is relatively easy compared to selling your house. You also aren’t responsible for maintenance and aren’t legally required to shell out for expenses like property taxes or even insurance (though renter insurance is a good idea if you can’t afford to replace what you own after a fire, flood or other emergency). Depending on where you live, utilities like water and heat might be wrapped up in your monthly rent.

While home ownership is more stable than renting, that doesn’t mean your monthly expenses won’t change. Your property taxes and insurance can increase depending on changes to the neighborhood that are out of your control — as can the value of your home. And if these costs do increase to the point where it’s unsustainable, you could be forced to sell your home at a loss if the housing market is not in your favor.

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Anna Serio-Ali is a trusted lending expert who specializes in consumer and business financing. A former certified commercial loan officer, Anna's written and edited more than a thousand articles to help Americans strengthen their financial literacy. Her expertise and analysis on personal, student, business and car loans has been featured in Business Insider, CNBC, Nasdaq and ValueWalk, among other publications, and she earned an Expert Contributor in Finance badge from review site Best Company in 2020.

Article edited by Kelly Suzan Waggoner

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