QUESTION: My husband and I would like to purchase a retirement home. We are in our mid-70s, and it would be our first home purchase. We are completely inexperienced in such matters. What are the best steps to take?
Would we be wise to have an inspection and a title search? When should we obtain a lawyer? What other items should we look out for? Also, we are considering paying all cash. Do you think this is wise for people in our age bracket?
ANSWER: Whether you are buying a retirement home or any other residential real estate, there are a number of issues--both legal and financial--that should be considered before signing the contract to purchase.
Obviously, the very first question is whether the area and the property you are considering meet your needs. While you indicate that you are in your mid-70s, one hopes that you will live a long time, and thus it is important to determine whether the neighborhood is convenient for your needs.
Are there adequate shopping facilities nearby, so that you do not have to worry about driving or other transportation merely to get groceries? Are there any plans for development in the area? You should investigate these matters with the local community planning officials in the town or county where you are looking to buy.
Once you decide on a particular house, I recommend that you discuss the purchase with all of your advisers and with your family. From a financial point of view, can you afford the house? From a legal point of view, you should obtain a knowledgeable real estate lawyer who will be representing your interest--and only your interests.
I strongly recommend that the contract you sign to purchase the property should include at least the following:
--Contingency on a satisfactory inspection by a building inspector of your choice.
You want an independent professional to carefully inspect the property, to make sure that it is structurally sound and to make sure that the mechanical equipment is not only in operating condition, but has a long useful life remaining. Obviously, you do not want to consider buying a house where the furnace may go bad in a year or two or the air conditioning system may be on its last legs.
--Contingency on financing.
You asked whether you should pay all cash for your house. There is no easy answer to this question. Much depends on your own financial situation. If, for example, you are considering buying a property worth $150,000, and if you have several hundred thousand dollars in reserve, then it might make sense for you to pay all cash.
Keep in mind, however, that if you pay all cash, the only tax benefits you will obtain are the real estate taxes on the property that have to be paid yearly. You might be better off--if you can afford a mortgage loan--to take out a moderate loan and make the monthly payments, taking advantage of some of the available tax benefits for home ownership. I know of too many retired individuals who are house rich and cash poor. Many people in your age bracket prefer to have a nest egg in the bank in the event of emergencies.
You should also consider whether your children would be interested in joining with you on the purchase on a shared-equity basis. Perhaps your children need some tax benefits, and would be interested in investing in your property.
It is important that you have a title company or a settlement attorney do a complete title report on the property prior to settlement. You are making a major investment and want to make sure that the title you receive will be free and clear of all outstanding liens, encumbrances or other defects--which we lawyers refer to as "clouds on title."
If there is a real estate broker involved in the transaction, you should be able to get assistance from that person. Keep in mind, however, that unless you are paying the broker directly, that broker represents the seller and owes a fiduciary obligation to the seller in connection with the purchase and sale of the real estate.
If you decide to obtain a mortgage, you should talk to several local lenders in the community where your future house is located. There are numerous loans available today, ranging from six-month adjustable-rate mortgages (ARM) to fixed 30-year conventional loans. You may be eligible for an FHA loan, depending on the amount of the loan you are seeking, and you may also have some unused Veterans Administration benefits available to you if one of you is a veteran.
These financial questions should be explored before you sign the contract.
You should also keep in mind that it is now a buyers' market. In many parts of the country, real estate sales are slow, despite the fact that interest rates are relatively low. This gives you, as a potential buyer, an advantage, and you should be prepared to enter into some heavy negotiations with the seller so as to get the best possible deal for yourself.
In the final analysis, one thing should be kept in mind: In the real estate world, absolutely everything is negotiable.