Mortgage rates have dropped to breathtakingly low levels. That’s tempting many wannabe homebuyers to rush into purchasing mode. But housing experts urge buyers of retirement age to proceed especially cautiously.
“Waiting until the winter might make sense,” says Todd Teta, a senior official at Attom Data Solutions (attomdata.com), a national real estate analytics firm based in California. “Winter is when the buyer pool shrinks and homes have been sitting on the market a bit.”
Compared to younger buyers with school-age children and active employment, retirees are typically better able to align the timing of a home purchase to their lifestyle priorities. That frees them from the pressure to buy prematurely.
Another reason why older buyers can proceed at their own pace is that mortgage rates are unlikely to rise significantly in coming months, despite economic uncertainties.
Financial advisers encourage buyers of retirement age to make a property purchase only after considering the ramifications for their overall financial plans.
Spencer Sherman, the CEO of a financial advisory firm, says older buyers should avoid depleting their retirement savings when deciding how much to spend on a property.
“Diversification of assets is really the name of the game,” says Sherman, the author of “The Cure for Money Madness.”
As an older homebuyer, how can you determine your affordability limits? Here are a few pointers:
-- Take the time to do a careful analysis of your financial situation.
In the past, many people made home-buying decisions in isolation, without first analyzing how their mortgage payments would fit in with a comprehensive financial plan. But moving forward without a holistic examination of your finances could result in serious missteps.
Obviously, one way to develop a broad plan is with the help of a financial adviser. If you choose that avenue, look for a planner willing to work within a limited time frame and to accept payment on an hourly basis, says Eric Tyson, author of “Personal Finance for Dummies.”
When hiring a planner, Tyson says it’s also wise to select someone who is compensated on a “fee-only” basis, meaning he or she doesn’t receive commissions by selling you stocks, bonds or insurance products.
One way to find such a fee-only adviser in your area is to go through the National Association of Personal Financial Advisors (napfa.org).
-- Reduce your outlays for financial advice by doing prep work yourselves.
One basic step toward the creation of a solid financial plan involves an analysis of your spending patterns. You need to know how much it costs you to live, both in terms of mandatory expenses (like health insurance premiums) and discretionary outlays (like restaurant tabs).
Unless you routinely track these statistics (whether with a notebook or a personal finance management tool, such as Quicken), assembling this information can be time-consuming. To avoid paying an adviser to assist with this grunt work, Tyson suggests you pull out your checkbook and credit card statements and tabulate the numbers before arriving at your planner’s office.
Those in their 50s and 60s who are considering a home purchase may also wish to prepare for a financial planning visit through the use of online retirement income calculators. Tyson recommends the free online calculators available through such investment firms as T. Rowe Price (troweprice.com), Vanguard (vanguard.com) and Fidelity (fidelity.com).
Retirement calculators can help you estimate how much you’re likely to have available to spend each month in retirement, the likelihood your savings will last through your retirement years and what you’ll need to do to make up for potential shortfalls.
-- Try to avoid overestimating future home value appreciation.
Sherman says many people in their 50s through 70s still have “a cultural bias toward buying real estate.”
Although he believes that any home located in a popular neighborhood will likely continue to appreciate in coming years, he argues against real estate as the centerpiece of any retirement plan. Also, he projects a slowdown in home price gains.
“Don’t expect home values to gallop along. In the future, they’ll probably plod along just a few percentage points ahead of the rate of inflation,” he says.
-- Factor personal preferences into the selection of a home.
Retirees wishing to make a move-up home purchase without sacrificing their future plans need to take into account their expectations for a satisfying retirement, says Darrell Kingsland, a 40-year veteran of the financial planning field.
Through the years, Kingsland has noticed that his clients vary widely in terms of retirement expectations. Some want to take exotic vacations and pursue expensive hobbies, while others intend to spend modestly. Some plan to continue working part-time as long as possible, while others would like to give up work altogether.
As an older homebuyer, why are your lifestyle expectations relevant to the housing decisions? Because your living standard could be a major factor in how much you can afford to pay for housing.
“Before buying a house, you’d better look at the big financial picture for your life, or you could develop a serious case of buyer’s remorse,” Kingsland says.
(To contact Ellen James Martin, email her at email@example.com.)