After years of working, planning and dreaming, the time has finally arrived to find that perfect home and make your move to the southeast. It’s an exciting time, to be sure, but it can also be challenging, especially when it comes to financing that new home.
There are a few obstacles that are common when financing a new home during the transition to retirement, but with the proper planning and guidance these can be easily overcome.
Issues with Income
The first issue that usually presents a challenge is the reduced income that comes with a change in employment status. Many people believe, falsely, that without a paycheck they will have a difficult time getting approved for a mortgage loan.
Advanced Planning – as with so many things in life, simply planning ahead, even just by 6 months to a year, can help you avoid this issue. By coordinating your mortgage application process and your retirement date (or even announcement), you can ensure that your pre-retirement income is included with no outstanding questions or issues.
Limited Distributions from Retirement Accounts – while taking any kind of unplanned distributions from your retirement account sounds like a bad idea, limited monthly distributions could be used to replace employment income post-retirement, even if only temporarily.
Issues with Down Payment
The second common challenge is finding the money for a down payment. More times than not, the majority of the borrower’s assets are either tied up in their current primary residence or in an IRA or 401(k). Having to put your move on hold while waiting to sell a house is not an attractive option, nor is taking a large distribution from a retirement account.
Recasting – also known as “re-amortization,” recasting is a relatively unknown strategy that is ideal if you still have your equity tied up in your current house. It allows you to pay a lump sum (for instance, once your house sells) to reduce your principal, and then have your payments reset according to the original interest rate and terms. The best part? It doesn’t require the expensive process of refinancing.
Bridge Loan – the most common solution is to obtain a bridge loan, which is simply a short-term loan that gives you the ability to move forward with a down payment on a new house, while waiting for your old house to sell.
If you’d like to discuss these options, or if you have any other questions about financing your new home in the South Carolina Lowcountry, call the Kristoff Team at (843) 603-5924 or schedule a time to meet with them in person or on the phone.