Q: Should we buy at our age?
Just when our friends are considering downsizing or moving into retirement complexes, we may buy our first house, or maybe a condo. With both of us earning teacher salaries all these years, we weren’t able to afford buying in our high-priced city previously.
Recently, my wife’s mother passed away. She left us a small inheritance that makes home ownership possible. We’ve lived in the same rental house for years and have few problems with it. Of course we’ve sometimes resented not being able to do what we want or get things fixed when we want.
Thinking of our own little home puts smiles on our faces. And yet, we’re fine where we are. What’s your advice?
It does seem ironic to be considering this biggest of moves when your friends are moving the opposite way. Perhaps you’ve held up this dream for so long that you’re unsure what to do now that it’s attainable.
You’re right that there’s no obvious answer. What I can offer you are the advantages and disadvantages of home ownership, information about a special deal for first-time homebuyers and perhaps some insight into how to evaluate these factors.
The main advantages touted for home ownership are privacy, investment potential, stability, more control in housing costs, community pride and tax incentives.
Owning a home allows you more privacy because there’s no landlord. If you end up buying a condominium, however, you could end up with less privacy from neighbors than you currently enjoy in your rental house.
Over the long haul, a house is often a good investment, but usually only if you’re there long enough to weather economic cycles and average out major repairs. For better and worse, you would be in charge of all maintenance.
Some people enjoy tinkering and fixing things, as well as the money they can save doing repairs themselves.
If you haven’t been doing fix-it jobs all along, though, it could prove frustrating to start now. It could be even more frustrating to be shelling out cash for professional repairs when they’ve been free for decades.
If you own a home long enough, appreciation may provide a larger estate for your inheritors, or more money toward your next housing option if you move again.
The cost is the flexibility you’ve had up until now to leave at will.
Neighborhoods with homes that are owner-occupied are generally thought of as more stable and higher in community pride. As long-time residents, though, you’ve likely developed pride in your community. It would be your call whether you could improve on what you have.
Believing owned homes to be better for society, the federal government is fond of rewarding homeowners. Here are the main points to consider:
- The Federal Housing Administration offers low-interest mortgages.
- Fannie Mae and Freddie Mac, the government agencies that now guarantee most home loans in the U.S., repurchase and guarantee mortgages, which helps hold down interest rates.
- You can take a mortgage-interest deduction on your tax return.
- There are also property-tax write-offs.
A recent addition to this suite of goodies by the federal government is to allow first-time homebuyers to put down just 3 percent instead of the normal 10 or 20 percent.
But the Center for Economic and Policy Research has found that the default rate for a mortgagee who pays 3 to 10 percent down is almost 50 percent higher than for those who put down more than 10 percent. And that’s definitely a disadvantage.
If you were my client, I would encourage you to consider your ideal last living situation. Where would you like to be living when you hit your 90th birthdays? If it’s a retirement home, then you might be well served by renting until you’re ready for that.
Check out your local ones to see how they’ve changed from what you might imagine.
If you see yourselves in rocking chairs on the front porch of a little cottage together, with family members or a visiting nurse stopping in to check on you, then it’s probably time to make that dream a reality.
Bottom line: Go with your heart, but bring your brain along, too.
Karen Telleen-Lawton serves seniors and pre-seniors as a financial advisor in Santa Barbara, Calif. Learn more about her practice at decisivepath.com.