Financial experts say buying your second home or retirement residence five to 10 years before you stop working is a smart move.
"[However] buying a second home is not for people who are just getting by," says Patrick Cunningham, vice president of Home Savings and Trust Mortgage in Fairfax, Virginia, “This should only be a choice for people with the income and assets to handle it."
Here are five key factors to consider before you take the plunge.
1. Fund Your 401(k)
Kimberly
Foss, president of Empyrion Wealth Management in Roseville, California
recommends clients properly fund their 401(k)s. In addition, buyers should have at least 12 months' worth of
expenses in the bank as an emergency fund.
2. Refinance the Right Way
For those not
paying in cash, homeowners can either finance it as an owner-occupied home, if the buyer resides in the
home, or as a second home.
Interest rates, qualification guidelines and down payment requirements are generally more reasonable on second homes than on investments. An investment loan requires a down payment of at least 20% or 25%.
3. Decide If You Will Rent Your Second Home
One of the primary benefits of
buying a home before retiring is rental income. If you use the property as a
rental property, you can gain tax advantages as well.
4. Consider the Location
Approach your property as you would any other investment and
evaluate the potential resale value based on the location, community amenities
and floor plan. Look for an urban-suburban location with nearby amenities,
healthcare facilities and cultural opportunities.
5. Be Flexible
Second homes are often in
resort areas. If you are more than 10 years away from retirement, rent your
second home choice first to see how it fits you and your family.. While renting,
investigate the neighborhood and familiarize yourself with the surrounding area.
This entry was excerpted from “Buy a Second Home Before You Retire?” as featured on foxbusinees.com. For the complete article, visit foxbusiness.com.
