Hi, I’m in the process of trying to get on track and turn things around. But since I am a renter and also do not have much of a savings to speak of…how do I get to a place where I can pay off my mortgage once I reach retirement ( I agree that that expense eliminated makes for best cash flow at that time) and if in order to get into a mortgage requires a better financial position to even obtain a mortgage such as having more to put down – how do I draw the line between being ideal vs too late? I could actually qualify now with 3 percent and find a home for 180-250ish but I am torn between being a stronger applicant vs needing to not have a housing payment when I am older and that time seems more close now as I am approaching 50. Yes, women have mid-life crises too 🙂 Given my monthly payments, it would take several years it seems to be in a better position and I think of this as I need to find a new apartment. Housing is important to me and my family is back on the coast where it is even more difficult. I am the classic case of two steps forward – three steps back. I worry that if I do not buy soon, I will never be able to survive since rent is always ongoing.
Hello Hilarie and thank you for your question.
You are right, renting can be ongoing and the sooner you can get a mortgage the sooner you can pay it off. Just a few things to think about:
You state that you qualify right now for a 3% down payment and a mortgage in the 180 to 250ish range. I would strongly encourage you to take some time and save at least a 10% down payment. This will help with reducing your monthly payment, build a saving habit, and while you are saving for the down payment, you can get some other ducks in a row to get ready to be a homeowner. When I was starting the process of buying a home and saving money, I also had another savings account that I was putting a smaller amount into so that I would have money for the new house. And having a 10% down payment also makes it easier to get approved for a mortgage and at a better interest rate. So for a mortgage of $180,000, you would save $18,000.
Since you want to have this house paid off at retirement or shortly thereafter, you should consider a 15-year mortgage. A 15-year mortgage will get you where you need to be by the time you want to retire, and do we now see how saving that 10% down payment would be very helpful here? Since a 15-year mortgage will mean a larger mortgage payment, putting down 10% would really help with this.
And even though you qualify for a mortgage in the 180 to a 250ish range, make sure that your monthly mortgage payment is no more than 25% of your monthly budget. You don’t want to be in a position where you have the house, but now you can’t spend any money or you are house poor. The goal here is not just to buy a house, but to do it the right way so you enjoy it and it fulfills your financial needs.
For example, the payments on a $180,000 for 30 years with an interest rate of 5% is $966.00 and the payments on $180,000 at 5% for 15 years is $1,423.00 (the numbers used here are for illustrative purposes only) so it is important to make sure that the payments will be affordable and not break the budget.
Being able to pay off the mortgage means that you will have even more cash flow going into retirement; which sets you up to be financially comfortable during this time. So this should be the priority.
Don’t look at it as ideal v. being too late, look at it as patience and prioritizing. Patience to save 10% for a down payment so you can get the best mortgage and prioritize so you save the money and build a savings habit which you will need on a going forward basis. Being 50 does not mean it can’t be done, it just means that you have to be more methodical in the steps you take to get there.
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