Q: I’m thinking of retiring in about six years. I have a condo that is rented. I want to buy a house, not in the same town where I have the condo. Should I buy a house now or wait until next year? In my opinion, the market is good now to buy, but my concern is that if I wait too long, the home prices and interest rates will go up. –Mercedes
A: To be perfectly frank, I’m not a big fan of timing the market, in general. Most people wait too long to get the deal they thought they would if they timed it just right, and it makes much more sense to try to align your real estate buy with your life than with the market, in any event.
In your particular case, however, if you’re just trying to decide between this year and next, my advice is to go ahead and begin the mortgage-qualifying and house-hunting process now, for several reasons.
First things first: You can’t buy a home with no money. The mortgage loan qualifying process has grown very complex, difficult and drawn out over the past few years, even for people who are truly creditworthy.
For that reason, even if you were planning to buy a home next year I’d be telling you that now is the time to touch base with a mortgage broker. Have them pull your credit, and work out an action plan for addressing any potential financing bumps in the road.
Assuming you have a mortgage on your rental property, this may complicate and lengthen the mortgage approval process for your own home — even though the rental home has a paying tenant in it.
Today, mortgage lenders want to see that a rental home’s mortgage is more than covered by the rental income and the owner’s personal income before they approve a loan on another property. Your obligation to make mortgage payments on your rental property may limit the amount you can borrow to purchase your own home.
You may want to take steps like raising the rent on your condo or reducing some of your other debt (if you have any) before you buy your own home.
Similarly, many discriminating homebuyers find that choosing and closing a deal on a suitable home takes a lot longer these days than it used to. There are many more grungy homes to sort through to evaluate their condition against any discount they may offer. Many of the best deals will attract multiple offers or are short sales or foreclosures which can take months to close escrow on.
Your main consideration in timing your home purchase should not be whether you buy now or next year. It’s whether the home you buy now will be affordable and sustainable throughout your retirement.
Make sure you and your financial and tax planners, if you have them, have realistically projected your retirement expenses, and that your mortgage obligations will be sustainable once you’ve stopped working. Also, make sure the physical characteristics of the property itself will continue to work for you as you age. Things like stairs and difficult-to-maintain exteriors become much less attractive as time goes on.
Home values aren’t on a steep upward trajectory almost anywhere, so don’t feel pressured by that. Mortgage interest rates, however, are a very different animal. Many market observers have predicted that mortgage rates will begin a somewhat steep, long-term increase this year.
If those predictions pan out, it’s entirely possible that right now is a time of peak affordability. Regardless of market issues, I’d encourage you to start seeking out referrals from family members and friends to local real estate and mortgage professionals, so that you can begin what might be the lengthy process of buying your next home.
