{"id":10936,"date":"2019-06-28T13:37:51","date_gmt":"2019-06-28T20:37:51","guid":{"rendered":"https:\/\/www.homelight.com\/blog\/?p=10936"},"modified":"2020-05-15T01:18:46","modified_gmt":"2020-05-15T08:18:46","slug":"buying-a-retirement-home-before-you-retire","status":"publish","type":"post","link":"https:\/\/www.homelight.com\/blog\/buying-a-retirement-home-before-you-retire\/","title":{"rendered":"The Case for Buying That Retirement Home Before You Retire"},"content":{"rendered":"

Over a third of pre-retirees plan to change residences<\/a> in their golden years, but what they may not realize is there are a number of benefits to purchasing a retirement house long before you\u2019ve left the workforce.<\/p>\n

\u201cDeciding on whether to buy a retirement home before you retire depends on what your goals are, and what your finances look like,\u201d advises Raylene Lewis<\/a>, a retirement specialist with over 18 years of experience who ranks in the top 5% of agents in College Station, Texas.<\/p>\n

\u201cThere are a lot of things that you have to think through, but if you’re financially able to purchase your retirement property before you retire, do it.<\/b>\u201d<\/p>\n

Ultimately the decision will be up to you and you can time the purchase as you please\u2014though you\u2019d be wise to review these four reasons that make a strong case for snagging that retirement property sooner rather than later.<\/p>\n

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Source: (Nicole Honeywill\/ Unsplash)<\/figcaption><\/figure>\n

1. It\u2019s easier to qualify for a mortgage while you\u2019re still working<\/h2>\n

Thanks to the Equal Credit Opportunity Act<\/a> it\u2019s illegal for lenders to deny you for a mortgage simply because you\u2019ve retired, but that doesn\u2019t mean the banks will make it easy.<\/p>\n

While lenders can’t discriminate based on your life expectancy<\/a>, they can and do take your income into account.<\/p>\n

\u201cIt\u2019s usually easier to qualify for a mortgage while you\u2019re still working,\u201d advises Lewis.<\/p>\n

\u201cYour income is higher when you\u2019re pre-retirement, so your debt-to-income ratio is more favorable. If you wait to buy after you retire, you may be limited to a smaller mortgage amount because you\u2019re living off of your retirement savings.\u201d<\/p><\/blockquote>\n

When you apply for a mortgage after you retire, distributions from retirement accounts, like your 401(k) and IRA, can be counted toward your monthly income totals, but only if you can access these funds without penalty<\/a>. And even then, lenders can only calculate your expected distribution amount based on 70% of the total value.<\/p>\n

If you buy before you retire, you\u2019ll have your pay stubs and W-2s to verify your income, and then your retirement accounts can be counted as assets<\/a> to determine your mortgage eligibility.<\/p>\n

2. You\u2019ll have more spending money to spruce up your retirement property<\/h2>\n

No matter how hard you look, you\u2019ll never find a house that\u2019s exactly what you want.<\/p>\n

Maybe your dream retirement home needs a major renovation, like a kitchen makeover or a roof replacement. Or perhaps you\u2019ve got a handful of smaller projects in mind, like installing chic new light fixtures throughout, or putting up a gazebo out back to create the ultimate retirement relaxation experience.<\/p>\n

In short, if you want to turn that house into a home, you\u2019re going to need to make a few tweaks to the property\u2014and that takes money.<\/p>\n

If you buy a retirement property before you retire, you have more flexibility and extra cash to do a little bit of remodeling to add your personal touch to the home.<\/p>\n

An age-in-place property also needs more than just personal, cosmetic improvements. You may have to invest in accessibility features<\/a> to accommodate any health and mobility issues you could face down the road.<\/p>\n

Having trouble visualizing what your housing needs might be should your health fail?<\/p>\n

The Americans with Disabilities Act (ADA) provides extensive guidelines to help you meet accessibility standards<\/a>.<\/p>\n

\u201cI’ve had quite a few clients who remodel their retirement properties to be ADA-compatible, such as installing accessible sinks or adding grab bars for safety,\u201d says Lewis.<\/p>\n

Not only will you have more money to invest in your forever home if you buy before you retire\u2014you\u2019ll have your current good health to invest in it, too.<\/p>\n

Home repair and renovation expenses add up when you pile labor costs on top of project supplies and materials. If you purchase your forever home before you retire, you\u2019ll be in good enough shape to tackle some of the home improvements yourself.<\/p>\n

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Source: (National Association of Realtors<\/a>)<\/figcaption><\/figure>\n

However, the older you get, the less likely you\u2019ll be able to take on home repairs and improvements. Statistics show that 70% of homeowners over age 70<\/a> have to hire professionals to make those home repairs.<\/p>\n

3. You have greater financial resources to handle unplanned expenses<\/h2>\n

The longer you live in a house, the better you get to know its creaks, quirks and requirements. You\u2019ll grow to know how soon your home will need a new roof, or a replacement water heater\u2014and you can budget accordingly.<\/p>\n

However, pricey problems are known to crop up unexpectedly within the first few years that you own a property. Those high dollar expenses may force you to dip into your retirement savings\u2014and replacing those funds may be difficult if you\u2019re no longer earning a salary.<\/p>\n

\u201cThere’s always going to be unanticipated expenses whenever you buy a property, even if it’s new construction. It’s easier to handle unanticipated costs that come up when you purchase a property while you’re still working,\u201d says Lewis.<\/p>\n

These unforeseen financial burdens can also arise during the sale of your existing home. For example, while most seller closing costs<\/a> are laid out up front, you could be on the hook to make repairs mandated by your buyer\u2019s lender before they\u2019ll approve the loan.<\/p>\n

4. Knowing your housing expenses helps you plan your retirement finances<\/h2>\n

One of the biggest benefits to buying your retirement home now is that you\u2019ll be locking your monthly mortgage payment and interest rate in place\u2014a smart move to make while interest rates are low<\/a>.<\/p>\n

Knowing the hard number for your housing costs, likely your biggest monthly expense, puts you in a better position to calculate your retirement budget<\/a> so you\u2019re not stuck with a mortgage payment you can\u2019t afford on a fixed income.<\/p>\n

Buying while you\u2019re still receiving a salary also lets you build up equity in your retirement house that provides you with a financial safety net in case any unexpected expenses arise.<\/p>\n

Let\u2019s say you\u2019ve still got a year or two until you can access your retirement accounts without penalty. Disaster strikes and you\u2019re now facing a huge medical bill that your accessible savings can\u2019t cover.<\/p>\n

Option one is paying the penalty to cover the bill with your retirement savings. Option two is taking out a home equity line of credit (HELOC) on your current home\u2014the one you intended to sell after you retire.<\/p>\n

If you do take out a HELOC, that\u2019ll need to be repaid at the time of the sale, tying up that home equity you spent years building up. However, if you already own the home you intend to spend your retirement years in, then you can repay that HELOC in your own time.<\/p>\n

Buying sooner rather than later also lets you cash in on your state’s property tax benefits for retirees<\/a>.<\/p>\n

Almost all states have a homestead exemption<\/a> program that allows qualifying retirees to exempt part of their home\u2019s value from their property tax calculations. A handful of states offer even better benefits.<\/p>\n

The assessment freeze program available in ten states limits how high your property\u2019s appraised value can go for taxation purposes. Six states offer a property tax freeze that simply locks your current property taxes in place.<\/p>\n

These laws are in place to prevent property taxes from rising too high for retirees to pay with a limited income. So the sooner you own your age-in-place home, the sooner you can take advantage of these programs.<\/p>\n

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Source: (Jay Sadoff\/ Unsplash)<\/figcaption><\/figure>\n

Buying retirement housing? Avoid making these 3 mistakes<\/h2>\n

Picking the right retirement house to buy while you\u2019re still pre-retirement is even more challenging than buying your first house. Without a workplace to tie you down, your retirement lifestyle housing situation is wide open.<\/p>\n

You could downsize to finance world traveling<\/a>, or relocate to be near family, or move into a 55+ community. While there are many tantalizing options to choose from, you\u2019re also at a greater risk of making the wrong buy.<\/p>\n

Take care not to make these mistakes:<\/p>\n

1. Don\u2019t get lured by your dream location<\/h3>\n

Have you painted yourself an idyllic picture of your retirement life? Maybe you see yourself lounging on the porch of a tropical beachside bungalow, or tending the gardens of a quaint little historic farmhouse in the countryside.<\/p>\n

If you buy one of these dream homes without ever experiencing the lifestyle it provides, you may find a nightmare waiting for you instead.<\/p>\n

\u201cI had a client who wanted to retire on a lot of on acreage out in the country where they could just relax by themselves. But buying that dream property didn\u2019t live up to their expectations,\u201d says Lewis.<\/p>\n

\u201cMy clients found that they didn’t enjoy paying the massive water bill or spending one full day a week on a riding lawn mower. Plus, they didn\u2019t want to be tied to maintaining all that acreage when they could spend that time traveling.\u201d<\/p>\n

2. Don\u2019t cash strap yourself<\/h3>\n

One major financial danger is buying a place with a monthly mortgage payment that won\u2019t be sustainable once you retire.<\/p>\n

Maybe it\u2019s the beautiful kitchen, or the perfect location. Whatever the reason, it\u2019s easy to talk yourself into buying a higher-priced home to retire in if you buy while you\u2019ve got that extra security of a salary flowing in.<\/p>\n

That\u2019s why you need to calculate your affordable housing costs<\/a> before you go house hunting. You can do this by basing your calculations on your projected retirement income, rather than your current employed income.<\/p>\n

You need to do this even if you\u2019re buying pre-retirement so that your current income can help you get a better loan. That way you\u2019ll know that you can afford the mortgage payment on a fixed income<\/a>.<\/p>\n

3. Don\u2019t fail to make a priority list<\/h3>\n

Figuring out where you want to live and how much you can afford to pay for housing after you retire all comes down to creating a list of your priorities.<\/p>\n

\u201cYou definitely need to figure out what your retirement lifestyle is going to be before you buy your retirement house. Otherwise, you may find that the house you\u2019ve always wanted won\u2019t offer what you need,\u201d says Lewis.<\/p>\n

Location and affordability may top the list, but they\u2019re not the only factors to consider. As you create your list, ask yourself questions like these:<\/p>\n