What you need to consider before buying your first home later in life? From mortgage terms to tax deductions, there’s many decision to be made before buying your first home. Note: This post has been updated to reflect a correction to the amount of the 2018 State and Local Tax (SALT) deduction change in the federal income tax code.
Q: Hello, my husband and I are both in our 60’s. Due to various circumstances we never brought a house. We had job losses, helped our sons through college, and a variety of other expenses.
But now we are in a position to buy our first home and have about 20 percent to put down. My accountant told me that I need to buy because I am being killed with taxes due to the fact that I am an independent contractor.
Do you think we are too old to purchase? Should we take out a 15-year or 30-year mortgage? We’ve decided that if something happens to us, our boys will inherit the property.
A: Let’s start with the premise that you’re never too old to buy your first home. We don’t care if you’re 60, 70, 80 or even 90 years old. If you have the money, and can qualify for the payments, and don’t mind the expense and work of keeping up the property, then by all means plunk down your cash, and head off toward the closing.
We know that you wrote that your accountant says that you are getting “killed” on your taxes and that you are self-employed. So, let’s take a deeper dive into what deductions are still allowed and how you might benefit from them.
You’ll get the mortgage interest deduction when you buy a home with a mortgage up to $750,000 and may be able to benefit from that deduction. (For tax years after 2017, the maximum amount of debt is limited to $750,000.) On the other hand. Your state and local taxes (the so-called SALT deductions) including real estate property taxes, are limited to $10,000, meaning that if you pay more than $10,000 in real estate taxes and state income taxes, you can only deduct up to $10,000 total for those items.
While we understand that you were told to buy a home by your accountant, we’d like you to work out the numbers so that you fully understand how owning a home will benefit you and your federal income tax bill. Ask your accountant to show you on paper what your tax bill would look like if you owned a home and if you continue to rent. Then, compare those numbers side by side. That should easily prove (or disprove) his theory that you’re getting “killed” by taxes because you don’t own a home.
Even if the numbers after taxes are the same, you may benefit from homeownership by paying down your mortgage each month (which allows you to build up your home equity), and by home value appreciation, which isn’t guaranteed, but which over time should help you stay ahead of the rate of inflation.
Of course, homes cost money to maintain and improve over time. So, please take the time to fully understand the fully-loaded costs of homeownership.
(We have friends who have lived in a rental for the past 20 years, and still pay only $100 more than the amount they paid in the first year. While owning a home may have given them ancillary tax benefits, they paid so little for their rental that they may have wound up ahead than if they had bought.)
Finally, in deciding whether to take out a 15-year or 30-year mortgage, you should decide what fits your budget and what your preference would be. The 15-year mortgage will have higher monthly payments, but should have a lower interest rate. Given that you are heading into retirement, you may want the cash on hand for quite some time as your income level goes down as opposed to a higher monthly payment that is shorter in duration.
But that decision is really up to you, once you know the amount of money you will need to have for retirement.
One final thought: Don’t let anyone try to stop you once you’ve decided to buy. It’s against the law to discriminate against anyone because age. So the mortgage lender who tells you, “We don’t make loans to home buyers who are older than 60,” should be reported to the Department of Housing and Urban Development (HUD.gov) and the Federal Housing Finance Agency (FHFA.gov) or, if you went to a large bank for a loan and were subject to age discrimination, to the Office of the Comptroller of the Currency (OCC.gov or HelpWithMyBank.gov).
Good luck, and we hope you enjoy your home.
All good points–and there’s one more. My in-laws bought their first home in their 60s–and lived until their 80s, which allowed them to build up some equity. That was important since both had always had modest incomes and lived primarily on Social Security in their retirement years. When my father-in-law died, and my mother-in-law became chronically ill, she applied for Medicaid. To qualify, she had to spend all her assets down to poverty level–but her home was exempt from the calculation. Before she finally became too ill and had to go to a nursing home, she was able to live happily in her own home with the help of a home health care aide. That wouldn’t have been possible had she been a renter.
SALT deduction is only $10,000 per return not $20k as stated in article
Thanks, Tom. You are correct. I’ve updated the article and will post a correction in next week’s column.
Ilyce Glink, Publisher