Buying New vs. Resale
Many people relocating for retirement are looking for a brand new home. They want to pick out their floor plan, colors and upgrades. Let’s face it, this should be a great house and likely the last, so why not make it the best?
If a new home is what you’re after you will want to be sure and avoid paying too much for the home. Not only is there the cost of the home, but there can also be lot premiums, and upgrades to the home that come with a price. Sure, you could add different upgrades after you move in and possibly save a lot of money, but the convenience of having the builder include them can be a huge time and energy saver. Be careful to make sure you are not paying too much by comparing what others paid for a similar model and upgrades. You can look at county records or ask the potential new neighbors. It pays to do your research!
If you don’t buy a new home but purchase a resale you can potentially save money but will you in the long run? Resale comes with its own issues. It’s a used home and there may be needed repairs or appliances that may be in need or replacement now or in the near future.
Pro Tip: If buying a resale: ALWAYS get an inspection and make sure the inspection covers EVERYTHING.
Finance, pay cash or HECM
I believe every retiree or almost retired individual should be making memories, NOT mortgage payments. Okay, at least you know where I stand… The only way to do this historically is to pay all cash for the house. I see retirees buying homes and putting a huge amount of money down and financing the remaining with a 30-year fixed mortgage. How does this make sense? I hear “we want to deduct the mortgage interest” or “we can’t pay all cash, so we need to get a small mortgage”. Getting a big mortgage interest break deduction is not even important for the majority of retirees. Retirement is all about cash flow not piddly IRS interest rate deductions!
It’s not unusual when a couple has $5,000 per month in retirement income or less, or more and they are stressing out about the deducting interest! Here’s the logic…. Make a mortgage payment of $1,500 per month ($18,000 per year) so you can write off $6,000 in interest… Does that make sense? Think about home much ice cream you can buy your grandkids with $6,000! Think about the vacation you could have taken, or the dinners with friends on the $6,000!
Paying cash is nice since you won’t have a mortgage payment, but it comes at a cost. What’s the opportunity cost of paying cash? What else could you do with the money? For example, you sell your home for $500,000 and after realtor fees and closing cost you net $450,000. You then buy a home for $400.000. You pay $400,000 and never have a mortgage payment. You have $50,000 extra cash from the home equity and no mortgage payment, life is great right? Well, maybe… What if you could have $250,000?
…Enter the Home Equity Conversion Mortgage. You could purchase the home putting 50% to 60% down and never make a mortgage payment. The program allows you to buy a home for less than all cash but achieve the same no payment scenario as if you paid cash. If opting for the Home Equity Conversion Mortgage you would have no payment and an extra $250,000 in cash. If you invested the cash at a rate of 5% annual return that would generate an annual income of $12,500. You really could use the money to make memories and not mortgage payments. You also have a nice cash reserve for potential future amenities.
I’ve written a book about this subject. You can get it here FREE!
When considering a move be sure to talk to a professional and do your homework to weigh the options around how to pay for the home and if buying new or used is best for you.