With many Americans facing a shortfall in their retirement savings, the home they own can be a substantial way to catch up. Typically the longer you've owned a house, the more equity you have built up. What's more, some homeowners are in the enviable position of not having a mortgage when they enter retirement, giving them a lot of ways to get income out of their house.
When it comes to using your home for retirement, people have many choices, but that doesn't mean they all make sense for you. For instance, a reverse mortgage may be perfect for one retiree and awful for another. Homeowners have to weigh the pros and cons of any strategy before they make a move. With that in mind, here's a look at five ways your home can bankroll some or all of your golden years.
Downsize to a Smaller Home
Whether you own the home outright or are still paying off the mortgage, a great way to get income out of your house is to sell it and then downsize to a smaller one. Downsizing will mean different things to different people, but either way, a cheaper property will immediately increase your cash flow. Let's say you sell your home for $500,000 and buy a new one for $250,000. That gives you $250,000 you didn't have before. Not to mention a smaller mortgage payment if you are taking out a loan.
Pay Off the Mortgage Before Your Reach Retirement
Your living costs will make up a big portion of your expenses in retirement, and a big chunk of that will come from the mortgage payment each month. If you start your retirement journey without a mortgage, it will boost your income stream and give you one less thing to worry about.
Rent Out a Portion of Your Home
Retirees who can't or won't sell their home but who have extra room can get some income out of their house by renting out a room or a basement apartment. Even renovating the house to make it a two family could be worth it if it can be done relatively inexpensively and the payback is quick. There are safety and security risks associated with renting, but if you find the right tenant, it can increase your monthly income and even help pay for some of the utility bills.
Get Equity Out Via Reserve Mortgage
Not for everyone, a reverse mortgage is a way retirees can get equity out of their home and have a stream of revenue to live off of. Ideal for people who don't want to leave their home to their heirs, a reverse mortgage gives you back your equity in a lump sum or in installments. Keep in mind that if you can't pay back the loan, get sick and are out of the house for more than a year, or your heirs can't pay back the debt, you could lose your home.
Become a Renter
Homeowners can free up some serious cash if they sell their home and rent. Sure, you aren't building up equity, but you also don't have to worry about where the money is going to come from to cover the bills each month. Not to mention that in a rental you usually don't have to shovel the walk way, mow the lawn or otherwise maintain the property, all of which costs money. If you choose a neighborhood where you can easily get around, you can also get rid of the car and the costs associated with that.
The Bottom Line
In a perfect world, everyone saved enough money to live the retirement of their dreams, but in reality, it is their home that will be the primary of money during their golden years. For homeowners, options abound when it comes to using their home as a cash machine. Selling, downsizing, renting, becoming a landlord and engaging in a reverse mortgage are all ways to do it. What make sense for you will depend on you financial situation.
