By making your move ASAP, you’ll be able to capitalize on today’s record-low home interest rates. Earlier this month, rates on 30-year fixed mortgages dropped to an average 3.4% – a hair higher than the historic low of 3.31% set in November 2012, according to an article by Freddie Mac.
There are more financial advantages to purchasing your retirement home while you’re still working full time. Here are five reasons why you should purchase now rather than wait until you retire.
Why you must Purchase your Retirement Home Prior to Retiring
Much easier to get approval for a mortgage
When mortgage lenders evaluate your loan application they look closely at your debt-to-income ratio (DTI) – your overall monthly debt divided by your gross monthly income – which is probably going to be a lower, better percentage while you’re fully employed.
Therefore, it’s much easier to be eligible for a a mortgage while you’re still earning a steady paycheck, says Mary Erl, a certified financial planner at Nest Builder Financial Advisors in Gurnee, IL.
Moreover, “by waiting until you’re retired to apply for a mortgage, you could be limiting what size loan you can qualify for,” says Todd Sheinin, a mortgage lender and chief operating officer at New America Financial in Gaithersburg, MD.
More cash flow for renovations
Unless you’re purchasing a newly remodeled home or building your home completely from scratch, you’re probably going to want to make some changes to your new property.
While you can – and should – set a budget for the work you intend to do to the home, “it’s nice to have a regular income when you’re updating or modifying your home,” Erl points out.
By working full-time during this period, you’re also protected financially in the event you uncover a major problem with the home.
“I had a client who purchased a home before he retired,” recalls Joe Pitzl, a certified financial planner in Arden Hills, MN. “Shortly after he started doing renovations on the property, he found mold in the home. Suddenly the cost of doing the remodel increased significantly, but because he was still working he had an income stream to fall back on that he wouldn’t have had if he was already retired.”
A head start on paying off your mortgage
Ideally you want to be debt-free in retirement, which is the reason many retirees decide to rent as opposed to own, says Erl. However if you choose to become a homeowner, the sooner you buy your retirement home, the quicker you can start paying off your mortgage.
Additionally, by beginning to tackle your mortgage debt while you’re still actively working, you’re capable of accelerating your payments – a move you might not be capable of pulling off when you’re living on a fixed budget in retirement, explains Pitzl.
Plan better for the long term
Currently, the most significant challenges is predicting what your living expenses will be in retirement. It’s tough, considering the fact that you don’t know how much you need to plan for housing.
By purchasing your retirement home now, you’ll get a better picture of what your monthly expenses will be in retirement – therefore you can certainly create a more accurate budget.
“If you have a mortgage in retirement, it’s probably going to be your largest monthly expense,” says Erl. “Knowing what your [monthly] mortgage payment will be is extremely beneficial.”
Expand your portfolio
If you’re financially in a position to carry two mortgages at once, it could possibly make sense to purchase your retirement home now and rent it out for a few years until you’re ready to move in.
Owning a rental property may possibly also help you retire sooner, since you’re adding an additional stream of revenue that you can put toward your nest egg.
Additionally, there are tax advantages to owning rental property. Depending on how you structure the borrowed funds, you may well be capable of deduct mortgage interest, property tax, operating expenses, depreciation, repairs, along with other costs. (Check out the IRS’ guidelines for more information.)