There are a lot of things in our life that change as we age. Our families grow up. Our careers grow–or perhaps go in a million different directions. Our priorities change every so often. And along the way, we grow up as well–physically, mentally, and emotionally.
Amidst everything going on in our lives, there is something that changes drastically as we age as well–but we don’t often think about it all that much, and that is being a homeowner.
In this article, let’s explore how being a homeowner changes as you age–and how it can impact your life along the way.
Young adulthood
It is easy to see why young adulthood is the most difficult phase of homeownership. The milestone of becoming a homeowner in itself is a feat that most people do not achieve until their late 20s or early 30s. Today, young adults have to save up for a down payment while renting to be able to qualify for a mortgage–and that can take years.
Despite these challenges, millennials are slowly taking over the market of new homeowners as they grow older. In April 2020, 53% of primary mortgages were taken out by millennials, with nearly half of the older millennials buying properties worth $300,000 and higher. On the other hand, younger millennials in their mid to late 20s were more frugal, with a median purchase price of $229,000. As the younger generations recover from the economic impact of COVID-19, we can expect more young people to take over the housing market.
Key challenges
- Saving up for a down payment. This is the biggest challenge that young people have to overcome in order to become a homeowner. For many, it can take years to save up for a substantial down payment so that they can avoid hefty interest fees.
- Building credit. Good credit is vital to a mortgage application, especially if one wants to secure great loan terms. With student loan debt and the rising cost of living, building good credit is another hurdle that the younger generations have to face.
Middle adulthood
Today, middle-aged adults are composed of individuals from the Gen X generation in their 40s and 50s. However, it won’t be long until millennials become the new middle-aged group, taking over their parents.
From a homeowner’s perspective, middle adulthood is the time for raising a family, which means that paying the mortgage can become a bigger challenge as basic expenses rise. For some, this is also the time for moving to a bigger house as the family grows, which, of course, comes with a larger mortgage payment.
On the flip side, a typical homeowner has already built substantial equity in their home at this point in life. If they decide to move to a bigger house to better suit their family’s needs, having a good amount of equity can help them close with a profit that they can use to buy a new home. However, this often means having to stay in the old home for five years or more to build sizable equity.
Having substantial equity also allows homeowners to borrow against the value of their home through home equity loans and HELOCs, which they can use to upgrade their homes or spend on other expenses.
Key challenges:
- Moving up. As the family grows, so does the need for space. Many middle-aged homeowners opt to move to a bigger home after building equity in their current one to avoid incurring losses. However, moving to a bigger home also means having bigger expenses (utilities, homeowner’s insurance, taxes, maintenance).
- Rising expenses. A growing family or an inflating lifestyle comes with larger expenses. That said, it is important for homeowners at this stage in life to manage income and debt well in order to avoid falling behind on mortgage payments.
Late adulthood
Having paid off the mortgage before or right after retirement is the most ideal situation for many. The main reason for this is that an average person’s income tends to decrease after leaving the workforce. Moreover, most retirees want to enjoy their entire income and not have a great chunk of it going to the house.
Unfortunately, this is not possible for everyone. Homeowners who took out their mortgages later in life can still be paying off their mortgage well into retirement. The same goes for homeowners who decided to refinance their mortgage with an extended loan life.
There is also the challenge of maintenance since a lot of seniors have difficulty keeping up with chores, repairs, and other home maintenance tasks.
Because of still having to pay the mortgage while in retirement and the demands of home maintenance, some seniors choose to downsize to a smaller home. Doing so allows them to start fresh somewhere else and possibly lower their mortgage payment, as well as reduce the amount of maintenance that they have to do. Some retirees also opt to take out reverse mortgages to borrow against the value of their home and eliminate their mortgage payments–all while retaining ownership of their home for the rest of their life or until they move away permanently.
Key challenges
- Maintenance. Maintaining a home becomes more difficult with age, especially for empty-nesters and seniors that live solo. Many seniors overcome this challenge by downsizing, living with family, or hiring help.
- Home modifications. Some seniors need certain modifications to make their home safer for aging in place, such as handrails, wheelchair ramps, higher toilets, etc. Luckily, seniors with substantial equity in their homes can take out home equity loans to pay for these modifications.
- Ongoing mortgage payments. If retirees still have to pay the mortgage after leaving the workforce, it can pose a great challenge if they have a smaller income. Taking out a reverse mortgage or moving to a smaller home (that their home equity can cover entirely) can resolve this problem.
Bottomline
Buying a home is a huge responsibility–one that we carry well into adulthood, and sometimes even into retirement. That said, it is imperative for every aspiring homeowner to know the challenges that are present in each stage of life, particularly when one gets married, starts a family, and retires. By knowing what lies ahead, it becomes easier to prepare for whatever may come your way, especially when it comes to your biggest investment–your home.