It’s not hard to find a 50-something asking the question, “Am I too old to buy a home?” The answer is, absolutely not. A couple of decades ago, the assumption was that everybody retired around age 60 or 65, but today, three out of four Americans plan to work past retirement age. In other words, at 50, you probably still have many working years left, and that means income to put towards a home.
That doesn’t mean that you should forget about age. You’re not 20 anymore; that means financial decisions are a little more complicated in some ways but easier in others. If you’re considering purchasing a home in your 50s, think through these issues.
1. How Big a Home Do You Really Need?
One question for people in their 50s is whether buying a new home means you're trading up or trading down. It's fun to be able to afford your dream house finally, but it pays to think ahead about how sensible an investment a huge home is.
The size of your home is one consideration. Maybe the kids are gone or may be leaving soon. Think ahead about whether you want to clean, heat, cool and decorate multiple rooms you’ll not use, especially as you get older. On the other hand, grandkids might be a good reason to buy a larger home. And of course, if you had children later in life, you may still have years of young ones at home.
No matter what ages your kids are, you won’t work forever. If you buy a new place in your 50s, most likely, some of your retirement funds will go to your mortgage. That's why you need to buy a home with a mortgage well within your ability to make payments in later years.
2. Would Another Mortgage Type Work Better?
Purchasing a home in your 20s and 30s makes the choice of financing pretty simple: a 30-year mortgage. There isn’t much need to consider anything else, in part because you probably don’t have the financial resources to make a higher payment.
But in your 50s, you need to think ahead. You don’t want to be making house payments as an 80-something. Consider a 15-year mortgage or one of the many other types. Try to pay off the mortgage while you’re still working, especially if you plan to stay in that home after you retire.
3. Is Paying Off the Mortgage More Important Than Maximizing Retirement Savings?
It will take some number crunching and maybe some help from a trusted financial adviser, but maximizing retirement contributions may net you more money than the money you would save by paying off your mortgage. You don’t know what the investment markets will do in the future so be conservative, but don’t stop thinking about your retirement contributions. You could easily have 30 or 40 years left of needing income.
Try not to rely on Social Security as your major income source. Think of it as augmenting your other sources of income from retirement savings or a pension, if you're lucky enough to have one.
4. Where Will You Live?
Everybody knows that location makes a difference in home prices, but most don’t know how much of a difference. The same home in Austin, Texas, could be a lot more in San Francisco, for example.
Maybe you’re not looking to make such a drastic move, but you can often find strikingly large differences within your own city. That neighborhood where all the rich people live might be beautiful, but is it worth the extra cost?
Pay attention to convenience: An isolated cottage in the country might save you money now, but not be such a smart choice in a decade or two, especially if driving becomes more difficult.
5. How Is Your Health?
If you or a family member is in declining health, you may need all the money you can get for those expenses. What's more, you can’t forecast health problems, so make sure there’s enough money saved to address those issues. This is a good reason not to overspend on housing.
6. How Often Do Your Kids Visit?
If your extended family structure makes it important to have a house with plenty of bedrooms, a larger home might make sense. If they’re farther away and only visit every year or two, pay for their hotel rooms. That’s a lot cheaper than paying the mortgage on a larger home with rooms that are used only rarely.
7. Is Now Really the Right Time?
Maybe you had kids later in life and they’re a few years from moving out. Maybe you see yourself or your spouse retiring within five years, and you plan to move to a warmer climate. Those are reasons not to buy a new home right now. Wait until the kids leave – or you're about to retire – and then you can downsize or move. Going through the process once is enough.
The other issue, of course, is that buying a home inevitably incurs expenses. If you still have kids in college or are about to send them, now might not be the right time to spend on something else – unless, of course, you're counting on using some of the money from selling the house to fund college.
Be aware that if you downsize to a cheaper house and end up with more money in your bank or investment accounts, rather than invested in a home, you could reduce your child's eligibility for financial aid.
The Bottom Line
Don’t listen to people who say a 50-something is too old to buy a new home. Do take into account all the factors you will face in the coming years and time your decision-making accordingly. And try not to get stuck making mortgage payments in your 80s.