Foss says she recommends clients max out their 401(k)s and make sure they have adequately insured their future before thinking about buying retirement homes.
"I recommend that people have 12 months' (worth) of expenses in the bank as an emergency fund," Foss says. "If they choose to buy another property, they will need extra money to cover those expenses, too. Even if they choose to rent the property for income, they need to have six to 12 months' of upkeep and rental income covered in their savings in case they don't have a renter for a while."
Financing another home before retirement
For 50- and 60-somethings with plenty of discretionary income, buying a home with cash is an option. Others need financing.
There are three basic options for financing a home, says Patrick Cunningham, vice president of Home Savings and Trust Mortgage in Fairfax, Va.
The home can be financed as an owner-occupied home if the buyer lives in it as a primary residence, as a second home or as an investment.
"Second-home financing means that you will need to qualify to pay the mortgage on both your current home and your second home," Cunningham says. "If you need some additional income to qualify for the loan, you can rent the property, and a lender will use some of your rental income for a loan approval."
Cunningham suggests that financing a property as a second home rather than as an investment property is the better option because interest rates, qualification guidelines and down payment requirements are generally more lenient on second homes than on investments. He says an investment loan always requires a down payment of at least 20 percent or 25 percent.
People getting ready to retire might want to consider the benefit of buying homes before they stop working because a mortgage approval could be more difficult to obtain without an income.