Even prior to the financial planning phase, a vacation and future retirement home buyer should take a step back and make certain that there is 100% commitment. Ask yourself a few simple questions. First, is it possible that your financial position could materially change for the better or worse in the upcoming years? Have you decided on a location that requires a dramatic environmental change? What about relatives, does it matter that their next trip may require a flight instead of a drive? If you've answered yes' to any of these, our advice is to find a long-term rental in the area and give it a test drive. If, on the other hand, there are no doubts, it is time to set your financial parameters.
Once the decision is made to move forward, you need to figure out how much of a home you want and what type of home you can afford. The latter is a bit easier to quantify as most financial institutions prefer mortgage payments that are less than 29% of gross monthly income. However, if you have a good financial track record, banks will afford you some latitude. Obviously, lending rates are a crucial factor in this equation, especially if you go the adjustable rate route. A word of caution: be careful of Adjustable Rate Mortgages that look particularly attractive in today's low interest rate environment as an uptick in rates could lead to a potentially unpleasant financial situation. Remember that buying now for a future retirement is a long term proposition and your new investment should appreciate with no financial carrying cost surprises.
An additional factor to consider is whether your prospective vacation property can provide rental income before it becomes your full-time retirement home. If so, you would be able to deduct a portion of your mortgage interest payments, taxes and property amortization against the rental income. In other words, it is a great way to build equity and create additional cash flows. It should come as no surprise that an increasing number of people have taken advantage of this strategy.
After defining your financial boundaries, it's time now to come up with your wish list. What do you want in a home? How many bedrooms and baths? Do you want to live in a private gated community or out in the country? Does it have potential as a rental property? In addition, off-site criterion should be established to ensure that all aspects of your vacation home experience are amenable to your current and future retirement lifestyle. For example, are there property management services and what about local conveniences such as transportation and healthcare facilities?
Now that you are armed with your financial parameters and wish list it's time to find a local broker and see what's available. Almost 70% of home buyers leverage the internet to research properties so if you haven't already, it's time to start surfing the web. Simultaneously, you should be refining your financing plan by contacting a number of financial institutions and mortgage broker aggregators. Don't be bashful, comparative shop with at least two or three companies to ensure that you understand the various financing options and are being offered the best deal.
