"Conventional loans are written off your income, and you have to prove you have the means to repay the loan," Cunningham says. "You may not be able to do that based on dividends from your retirement savings. If you are concerned about qualifying for a mortgage after you retire, you could be better off applying for one earlier."
Foss says one of the primary benefits of buying a home before retiring can be the generation of rental income.
"Income from a rental property can act as a hedge against the low interest rate environment we are in and against future inflation because you can raise the rent to offset inflation when it hits," Foss says. "If you turn the property into a rental property until you are ready to live in it, you also gain some tax advantages."
Property choicesCharles Duck, president of Charles Duck Real Estate in Phoenix, says the pre-retirement buyers he works with are looking for bargain-priced luxury homes because they offer more certainty of future appreciation.
"Some people are deciding to buy now and leave the property empty for a while or to use a place as an occasional vacation home," Duck says. "Others decide to rent the property until they are ready to use it. The important thing for all these buyers is to find a latchkey property so that they can travel or live elsewhere and not worry about it."
When choosing a home a few years before retirement, Duck says the first consideration should be the location.
"Many retirees want an urban-suburban location where they can walk to amenities and restaurants," Duck says. "The important thing is to look at this property like any other investment and evaluate the potential resale value based on the location, community amenities and floor plan."
Duck says this cohort of buyers should consider looking for low-maintenance houses with all the living spaces on one floor, so the future retirees can avoid climbing stairs.
Flexible plansFoss says if you are 10 years or more away from retirement, you may want to opt to rent a vacation home for a month at a time in order to avoid getting stuck with a permanent decision about your retirement destination.
"People change a lot between age 50 and 90, so I like the idea of keeping your options open and allowing for flexibility," says Foss. "Buying your retirement home early can be a great option, but I recommend that people do this with the mindset that it is a rental property with the option of using it as a vacation home later rather than getting locked into a retirement plan."
Cunningham says to have a backup plan for a second home, including an estimate of rental value in case the home cannot be sold for a profit if you change your mind.
"Buying a second home is not for people who are just getting by," says Cunningham. "This should only be a choice for people with the income and assets to handle it."
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