Veteran with no debt considers purchasing home
Q: I’m 66years old, with $ 5,100 inmonthly income fromthe government. I havenoliving dependents. I pay$ 1,600 amonth in rent andam a veteran. At this point inmy life, should Ibuy a condoor single- level house or continue to rent? Ihave$ 20,000 in savings andnodebt or credit cardbalances.
A: Thanks for your question. You’ve done a good job managing your money throughout your career, and nowseem to have a solid retirement plan. The questions on the table: Why buy a home now? And what’s driving that decision?
You need to think about whether owning ahome would be a better option for you financially, socially and emotionally than staying where you are. ( By theway, your question didn’t include even a hint of whether you likewhere you live orwhat buying a newhome in your neighborhood of choice could cost, but those are pretty important issues aswell.)
You have $ 20,000 in savings, and if that is all you have, you don’t have a huge emergency reserve. While it’s about one- third of your annual income, most lenderswould like to see you put down20% toward the purchase of a newhome. Ona $ 100,000 home, youwould use all of your savings for the downpayment and have no money left to pay for the expenses of the purchase of thehome.
Of course, you are a veteran and might qualify for a loan thatmay allowyou to close without muchof a downpayment. Even so, you’ll have to pay costs associatedwith the purchase of thehome. While youmay be able to finance some of those costs through a larger loan or a small or zero down payment loan, you’ll need to figure out whether your monthly expenses in that newhome will be more or less than what you pay now, and if you’rewilling to change your spending to accommodate thosenew expenses.
You also have to see if the cost of your loan, any assessments on a condominium, insurance expenses and real estate taxeswould be less or greater than what you pay nowin rent.
Let’s say you find a home to buy that costs $ 150,000 and your loan is for the full amount of the purchase price. Your monthlymortgage payment on that loan at3% interestwould be around $ 1,010 per month. If real estate taxes are around 1% of the purchase price ( depending on the state, they could be asmuch as 3% of the purchase price), your real estate taxeswould be around $ 125 permonth; andwe think you’d pay around $ 40 per month for your homeowner’s insurance. The total for your monthly costswould be around $ 1,175. Now, if you end up in a condominium building, you might have monthly assessments of $ 200. At this point, you’d be shelling out $ 1,375 per month for the place.
We have no idea how far $ 150,000 goes toward buying a home that replicates the standard of living you have right now; and please understand, these numbers are general. But wewanted you to see that while you might save $ 100 or so per month in our example, you will also have other costs, immediately and over time, including moving, fixing up thenew place and even spending on maintaining thenewhome over the years nowthat you ( and not a landlord) will have to bear that expense.
But is this a dream you’ve long had? Have you always wanted to ownyour own home? In someways, as you go into retirement, it may feel like this is your last chance to drive this part of your destiny.
Formany people, buying a home is amuch more personal decision than financial. While your finances need to be in place, they seem to be in good enough shape. And, at the end of the day, youmay want to indulge this dream.
If so, your next step is to sit down ( virtually or in person) with a loan officer at a savings and loan institution or credit union near you, and perhaps also with a mortgage lender or broker.
That person should be able to help you figure out howmuch you can afford to borrow, decide what type of loan might be best for you and see if there are any issues with your credit history that might cause you problems in applying for a loan.
Ona separate note, you can research properties in your area online to see if any of themmeet your criteria and requirements. Then, you can hire a real estate agent to tour those properties and see if you canmake your dream a retirement reality.
Good luck. Let us know what you end up doing.