If you’ve been keeping tabs on mortgage rates, you may be aware that they’re generally down this year compared to last year. And in late February, mortgage rates even dipped below 6%.
You may be wondering if you should buy a home as a retiree in light of today’s borrowing rates. But here’s why it may not quite be the right time.
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Homes are still expensive
While it’s true that mortgage rates are lower these days than in recent years, historically speaking, they’re not low. And homes are not necessarily affordable.
The National Association of Realtors reports that in January, the median existing-home sale price rose to $396,800. January also marked the 31st month in a row of year-over-year home price increases.
In February, Redfin reported that Americans now need to earn $111,252 a year to afford the typical U.S. home that’s for sale. But according to recent research from The Motley Fool, the average retirement income for Americans 65 and older today is $83,950, and Americans of retirement age have a median income of $54,710.
If we use median income as our benchmark, the typical retiree only earns about half of what’s needed to afford a typical home today. Clearly, that’s a big mismatch.
So unless you have a higher retirement income, now may not be the right time to buy a home. You may instead want to wait for prices to come down and for mortgage rates to slide even more.
Don’t forget about additional costs
When you rent a home, you write your landlord a single check every month that covers your housing costs. When you own one, you have to pay for a lot of extras — property taxes, maintenance, repairs, and in some cases, HOA fees.
Those costs could add up and strain your retirement budget in a serious way. So even though mortgage rates may be a bit lower now, and buying a home may be less expensive than it once was, that doesn’t mean you’re in a strong position to do so.
Before you start looking at homes, calculate your retirement income. Factor in Social Security, retirement plan withdrawals, and any other steady income you have access to. Then, see what homes are selling for in your area.
From there, find an online mortgage calculator and see what monthly payment you may be looking at based on today’s rates. If the number is a lot higher than what you’re paying now, it probably means it’s the wrong time to buy. If the number is comparable, add in the extras just mentioned and see if the total still works for your budget.
Remember, there’s a good chance mortgage rates will fall further in time. Waiting to buy a home could be a smart decision, especially if you’re not quite sure you can afford one right now.
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