Retiree aims to sell house and buy another

Ilyce Glink and Samuel J Tamkin

Q: I retired in 2020. My long term plan was to move into a single family home. I postponed it due to COVID-19 but hope to be able to move this summer.

I currently own a two bedroom, one and a half bath townhouse that I would like to sell. I am single and want to buy a three bedroom, two bath house so I have more space.

I’m trying to figure out how much I can afford. Can you recommend a good website or calculator? I want to have a good idea of ​​how the numbers work before contacting a real estate agent or mortgage lender.

I love your column and recently read Ilyce’s book 100 Questions Every First Time Home Buyer Should Ask. Although I’m not a beginner, it was very helpful and interesting. Many Thanks.

A: Thanks for the kind words about Ilyce’s book. In it, she walks readers through a formula to calculate how much money to spend on buying a home.

But let’s run through the numbers here, because many homebuyers are in the same position as you. According to a Redfin report, homebuyers everywhere need significantly more income to qualify for a mortgage. That’s especially true in the Sunbelt, where homebuyers in Tampa, Phoenix and Las Vegas need 40% more income than last year to afford a typical mortgage payment.

That’s a problem for many seniors looking for a sunny retirement but living on a fixed or limited income. Whether they want to stock up when they retire to have more space, or move closer to family or friends, affordability is always the issue. Considering how quickly house prices have risen over the past five years, many readers wonder if they’ve been denied the move altogether.

We’re going to make some assumptions about what you can spend. Since you’re already a homeowner, we’re assuming you have at least some equity in your townhome. That should help make your next purchase a little cheaper. We also assume that you will have a fixed income as a pensioner. Whatever you spend, make sure it’s affordable given your current financial situation.

First, how much income do you have? As a retiree, you likely have Social Security income. Do you also have a pension? Is there annuity or capital gains? Do you have a part-time or full-time job you want to keep? Do you have someone in your household who can contribute a regular income?

Next, what kind of debt do you currently have? Do you have mortgage or credit card debt? Do you have student loan debt (for yourself or your children or grandchildren)?

What are your current expenses? What healthcare expenses do you regularly pay outside of your Medicare check? What about groceries, utilities, Wi-Fi, cable, transportation, travel, or entertainment?

Once you have a good handle on your income, debt, and expenses, you have the essential parts of your budget. Now you need to know what your credit score is as this will increase the interest rate on your loan.

If you can buy a new property without a mortgage, you are financially stronger. If you need a mortgage, you must qualify like any other buyer. A lender allows you to spend up to 36% of your gross monthly income on your total debt. So if your annual income is $60,000 (consisting of Social Security and a part-time job), that’s $5,000 a month. You should be able to spend 36% of $5,000 or $1,800 on your mortgage, property taxes and insurance, and any other debt you have.

Remember, just because a lender allows you to spend $1,800 a month on all of your debt doesn’t mean you should. This number may be too high for you to comfortably shoulder with other expenses you may have in the future.

The problem is that $1,800 a month won’t go as far as it did five years ago as house prices have skyrocketed and interest rates have doubled since early 2021.

All search engines provide links to mortgage calculators that you can try. For example, if you paste “Mortgage Calculator” into Chrome, it will give you almost 2 million links as well as its own tabs with “Monthly Payment” or “Purchase Budget” tabs.

The Chrome calculator we tried gave this result: A $300,000, 30-year mortgage at 5.75% requires a monthly payment of $1,802, including $400 in taxes and fees . The calculator allows you to add your state and credit rating range for a more accurate estimate of costs.

You should try several different online calculators. Understand that these mortgage bank backlink calculators are optimized and designed to generate revenue for the websites or browsers. That doesn’t mean you won’t get a good or fair deal. But you have to be careful and look around.

Be sure to speak to a few different lenders (including a national bank, local bank, credit union, online lender, and mortgage broker) to get a better idea of ​​what you can afford and what type of loan they will approve would be based on your income and credit rating. If you need a referral, talk to your real estate agent or solicitor.

Much luck.

Contact Ilyce Glink and Samuel J. Tamkin through their website, BestMoneyMoves.com.

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