CALLER: Hi Ken, I have been following your columns for many years and they are very informative and delightful. I am turning 60 and want to buy a home again. I am retiring in a couple more years and would like your opinion on this subject. I sold my house in 2006 because I read your article about cashing out profits because the market was getting too hot and a possible meltdown in the RE market is inevitable. I am really grateful that I followed my instinct and sold it back then. I have been renting at a very low price since, there are only two of us and our children are all grown already. I am very happy now, but been getting a lot of solicitation to buy a house from different people. Please give me your honest opinion.
Ken: Thanks so much for the message and I am so happy that at least one person did listen to my advice back then when the entire market was ignoring any signs of a huge bubble. Since both of you are retired, I feel like your retirement income will just eat away any possibility of both of you enjoying your retirement. I am going to suggest that you just continue to rent. Your retirement income is enough for a decent rental apartment but not enough for a decent home mortgage payment, you do have savings for a down payment but I wanted you to keep that deposit as your emergency funds, if you deplete your savings put in into a house and still have to pay more than half of your retirement into a mortgage. I am afraid that it might be too tight for you, what if you have to fix something and keep up with the maintenance of the house? With a house you will be left with a very little spendable income and almost no emergency funds.
I suggest for you to continue to rent, keep the savings and enjoy your full retirement in a couple of years. If my calculations are correct you can enjoy a minimum of one trip back home to the Philippines every year with plenty of pasalubong (gifts) and at least 2-3 small weekend trips locally.
Caller: I have a home in Whittier and there is a lot of equity in the house. I got divorced and I get to keep the house and the mortgage. I am retired and only working part time therefore my total income is less than $1500 a month. I need about $40,000 to keep my property updated and make it livable. Can you help me refinance my home loan and get me some cash out?
Ken: I have been talking to this caller for about 6 months, initially I already requested her to get a line of credit from a Credit Union to fix her roof and garage because it was so bad that you can actually see the sky thru holes in the garage. I had mention to her prior that she will not be able to get descent financing even though she has about $350K equity in the house. Her actual retirement income is not enough for her to qualify for any amount. She can’t even qualify for her own existing loan. She did get a $25K line of credit that was good prior but because she was so worried to borrow more money back then, she just opt to get $25K out, now that she realized that she needed more work on the house, she is left with no other option. She does not want to sell because she has been there for over 40 years but now she can’t take any of the equity out because she can’t qualify.
This is a very common situation now, where retired homeowners have all their equity invested in their homes but they can’t use the equity. They are struggling check to check and have no other way to enjoy the fruits of their labor. Retired homeowners are also very conservative where they don’t want to keep taking money out, they are old school investors and they still believe in savings and paying off home mortgages.
Here is a dash of this new century mentality into that thought. If that were me, I would sell the house and use the proceeds to buy smaller house cash and enjoy the rest of the money slowly. I have to assume I still have a descent retirement income and that money is to basically do longer trips and enjoy better thing in life while I can. But of course, for me easier said than done, these homeowners might have a lot of emotional attachments and memories towards this real estate hence, would not like to let go. I seriously understand, but I also see them struggling and settling for a lot less than what they deserve. We all work hard and our efforts deserve to be compensated regardless of mistakes done or mishaps, hard work is still hard work and can’t be replaced.
My advice to more mature homeowners, a house turns into a home when you live in it. You should consider other change to suit your financial needs and change is good.
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Thanks for your comments and support, please feel free to call Ken Go at 1st Innovative Finance Group at (562) 697-7028 or write to [email protected].
