Conventional wisdom says that if you want to buy a home, you do it when you’re young. After all, if you’re going to be paying on a mortgage for 30 years, it’s better to get a jump on it sooner rather than later. For some would-be homebuyers, however, making a move to buy isn’t something they tackle until later in life.
Maybe you’re trying to pay your student loans or credit card debt down first. Maybe you didn’t hit your peak earning years until after your 40th birthday. Whatever the reason for putting off a first home purchase, one thing doesn’t change: buying a home is still stressful. It means jumping through certain hoops, regardless of how young or old you are.
If you’re prepping to buy a home for the first time and you’re in your 40s or 50s, your financial situation may look a little different than a twenty-somethings. I’ve got some pointers that can help make navigating the process as smooth as possible so you don’t have to put off your dream of owning a home any longer.
1. The rules for buying don’t change
Mortgage lending standards have gotten tighter over the last decade or so but being a little older doesn’t mean you’re exempt from following the rules. You still have to meet the minimum credit score requirements for the loan you’re applying for. Your debt-to-income ratio has to match up with what the lender’s looking for and you’re still expected to pony up money for a down payment.
While that may be disappointing to hear if you were looking for a break, there is one upside. A lender can’t deny you for a loan based solely on your age if you meet the financial guidelines needed to qualify. They also can’t use your health against you as a condition of approval. That means if you’re a 55-year-old with diabetes, you can still get a mortgage as long as you’ve got the means to pay for it.
2. Your choice of mortgage matters
If you’ve never shopped around for a mortgage before, you might be surprised at how different your options are. An FHA loan, for example, only requires a 3.5% down payment and a minimum credit score of 620. If you want to try for a no-down payment USDA loan on the other hand, your credit score needs to be 640 or higher.
Then there are the mortgage terms to consider. A 30-year mortgage is what most buyers choose but if you don’t want to be stuck paying your home off well into retirement, you might think about a 15- or 20-year loan instead. While that means you’re not paying as long, it translates to a higher monthly payment.
If you’re concerned about your income going down at any point as you get closer to retirement age, a higher payment could be a problem. You’d have to run the numbers on what you expect your mortgage payment to be and compare that to how you think your income will change over the next two to three decades to decide whether you can sustain a higher payment over the long term.
3. Down payment help exists if you need it
The industry standard for a down payment on a conventional loan is 20% of the purchase price. On a $200,000 home, that comes to $40,000. Now, if you’ve put off buying until your 40s or 50s, hopefully you’ve spent that extra time beefing up your down payment savings. If you haven’t, it’s time to start researching ways to get your down payment covered.
You could ask a family member to gift the money to you but if your parents are elderly and they need their cash to fund their own retirement that may not be an option. A better choice might be down payment assistance programs. These programs offer money to qualified homebuyers who need money for a down payment or closing costs.
There’s some variation in how these programs work. Program A might give you the money in the form of a grant while Program B might be set up as a matching savings plan, where every dollar you put in is matched up to a certain amount. Generally, you don’t have to pay the money back as long as you stay in the home for a minimum number of years. If you’re ready to buy but a down payment is an issue, looking into this kind of assistance may be just the solution you need.
4. Make sure you’ve got a backup plan
One thing you might not give much thought to if you’re buying a home in your 20s is what would happen to the home if you pass away. You’re young, you’re healthy, you assume that you’re going to live long enough to pay the mortgage off, right?
When you’re closing in on 50 or 60, you have to give this a little more consideration, especially if you’re married. You don’t want your spouse left holding the bag on a big loan if something unexpected were to happen to you. Putting the right insurance coverage in place can head off problems before they happen.
Term life is usually the more affordable route when you’re older. Whole life allows you to build cash value but the premiums tend to be much higher. Regardless of which one you decide to go with, one thing is a must. Make sure you have enough coverage to pay off your mortgage and any other debts you don’t want to leave behind.
Looking to buy your first house in your 40s or 50s? Tell us what challenges you’ve encountered along the way.