Q: My husband and I are both in our 60s. Due to various circumstances we never brought a house. We had job losses, helped our sons through college and had 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 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 have decided that if something happens to us, our boys will inherit the property.
A: Let’s start with the premise you are never too old to buy your first home. We do not care if you are 60, 70, 80 or even 90 years old. If you have the money, can qualify for the payments and do not 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 you wrote that your accountant says 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 will 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 (known as the SALT deductions), including real estate property taxes, are limited to $20,000, meaning if you pay more than $20,000 in real estate taxes and state income taxes, you can only deduct up to $20,000 total for those items.
While we understand you were told to buy a home by your accountant, we would like you to work out the numbers so 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 you are getting “killed” by taxes because you do not 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 is not 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 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: Do not let anyone try to stop you once you have decided to buy. It is against the law to discriminate against anyone because of 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 and the Federal Housing Finance Agency 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).
Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (4th Edition). She is also the CEO of Best Money Moves, an app employers provide to employees to measure and dial down financial stress. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact Ilyce and Sam through her website, ThinkGlink.com.