Did you know you can purchase a home, even new construction, with a Home Equity Conversion Mortgage? It’s a reverse mortgage that doesn’t require you to make a monthly payment.
I’ve had many conversations about this very issue with numerous senior clients who are concerned with having a mortgage in their 80’s and 90’s. Especially now, when the cost of living just seems to keep on rising for them.
In this time, most people are realizing the power of cash – accessible cash that is. As we age, it is important to have access to the money we have earned over the years in order to help us manage our chosen lifestyle and our health in the retirement years. A forward mortgage, such as a conventional home loan, a VA or FHA loan requires you to spend every month by paying back principle and interest, which puts pressure on your bank balance. Whereas a reverse mortgage allows you to keep your money in your pocket to use how you wish, with an option to pay or not to pay a monthly amount toward principle or interest.
Beware, not all reverse mortgages are equal. Be sure to speak to a professional who is willing to sit with you at your kitchen table (or their office) to explain the details. Online services are unlikely to do that, and may lead you into signing documents without explaining everything you need to know.
Consider this information as a tool you can use for your financial wealth.
Presented in partnership with Genie McGee a Reverse Mortgage Planner with Fairway Independent Mortgage Corporation.
If you need to know how much equity you have in your home, contact me for a complimentary real estate market analysis.
A whole bunch of fun is what we have when I get together with fellow agents to teach the 3-hour Continuing Education class called “Here Comes the Boom” and the 2-day Designation class, “Seniors Real Estate Specialist”. Both feed my passion for educating. The classes are always great learning for the participants as well as me – since teaching is always a two way street, in my opinion!
As a Real Estate Instructor, I can share information and examples from my own vast experience. However, the experiences shared by participants are most valuable to help us all learn what our clients need from us, how we can best service our clients, or pick up tips and strategies to support our real estate businesses.
I’m available to instruct real estate agents and to facilitate seminars for older adult groups open to hearing about the challenges and solutions of downsizing, resizing and relocating. Call (678) 609-8019 to discuss how we might work together.
If you are an older retiree and have been overwhelmed lately with managing your financial accounts, it might be time to consider hiring a Daily Money Manager (DMM). A DMM is a cost-effective way to help keep your financial life in order by hiring a professional to help you keep track of paying your bills on time, balancing your check book, handling insurance matters and providing tax documents to your accountant. Depending on where you live, costs can range between $75 to $150 an hour and some even charge a monthly retainer instead of an hourly fee.
Atlanta Seniors Real Estate caught up with Barbara Scurry, founder of Senior Partners. Barbara has been a DMM for 6 years and 10 years in geriatric health care/ marketing.
“I’ll share with you the story of Dorothy, a client of mine for almost four years. Dorothy was 79 years old when I started working with her. She never married, had no children, siblings, or other relatives with which she associated and she lived in an assisted-living facility (ALF).She was highly educated and detail-oriented but had stopped paying her bills and was showing early signs of cognitive decline. When I started working with Dorothy, I had great concern that she would run out of money within 12 to 18 months.”
Saving and finding money
Scurry said, “I began basic daily money management services, including opening and sorting her mail, making calls to outside vendors on her behalf, and organizing her files. But I got involved with her life issues as well and quickly realized she was not getting the care she needed (and was paying for) at the ALF where she was living. I helped her find a new ALF that saved her $2,500 per month in living expenses.”
Dorothy was also missing stock certificates that were about to be turned over to the state of Georgia, “one evening, as I was going through some old papers I finally found them! When we deposited those certificates, they ended up being worth more than $125,000! That money helped take care of her needs for the next three and a half years!”
Help with moving
Scurry even advised Dorothy on moving, a service perfectly aligned with the real estate transition services provided by Atlanta Seniors Real Estate Team.
“I referred her to a professional move management company and coordinated their services to get her packed, moved, and unpacked at her new location.”
Extra money can be used for updating home to age in place
Seniors and their adult children decide every day on aging dynamics and the feasibility of remaining in a long-term residence. While many seniors choose to downsize their living space, there’s a share of seniors that desire to remain in their homes or age in place.
Peter Bell, president and CEO of NRMLA and president of the National Aging in Place Council, positions using home equity as a way for seniors to update their homes to age in place.
“Instead of moving out, various modifications, such as stairless entryways and wider bathroom doorframes, can be made to accommodate new mobility and accessibility needs,” he said. “The housing wealth our seniors have built up in their homes over the years, their home equity, can be used to update the family house into a space for living comfortably and independently for years to come.”
A few stats about American homeowners aged 62 +
According to the National Reverse Mortgage Lenders Association (NRMLA) and RiskSpan, this demographic had $6.3 trillion in total home equity at the end of the first quarter 2017, a 3.1% increase between fourth quarter 2016 and first quarter 2017
NRMLA and RiskSpan’s Reverse Mortgage Market Index, reached 227.07 in the last quarter, the highest since it was created in 2000.
Seniors’ home equity has been rising steadily for much of this decade, only falling in three quarters in 2010 and 2011 during the recovery from the housing crisis and recession.
When we think about purchasing a new home, we often think about young families looking to expand or people looking to move to a different part of their city (or even across the country). Once a person hits retirement age, we don’t think about them purchasing a new home.
Seniors have plenty of reasons to purchase a new home. There’s no rule that says you’re locked into the house you’re living in once you hit a certain age. If you’re a senior in the market for a new home, there are three basic questions you need to answer before you get started.
Why am I purchasing a new home?
The reason why you’re purchasing a new home should drive the type and location of the house you choose. Many seniors choose to move in their later years to downsize. Maybe you’re living in the house you’ve lived in for decades and it’s simply too much room for you now that the kids are gone. If so, you need to look for a low-maintenance home. Maybe you’re moving because of mobility reasons. If so, you need to make sure that the new home you buy is set up for prime accessibility. Maybe location is what matters most, as you’re moving to be closer to family. Figure out your prime motivation for moving and tailor your home search around it.
How am I going to finance it?
For some seniors, this usually is not a tricky subject. If you’re financially stable, you may choose to finance your new home in the same way you financed your last home – with a standard mortgage.
But for some seniors on fixed incomes, the question of paying for their new home is a little more complicated. It is worrisome to think about paying a large monthly mortgage payment on a fixed income, and worse yet, dipping too heavily into retirement savings.
“With the HECM for Purchase reverse mortgage, the borrower provides a down payment using the sale of the previous home or other savings. The equity earned through the down payment and the new home’s value is used to calculate the reverse mortgage loan amount. During this process, borrowers may need to meet the loan-to-value ratio requirements with a significant down payment and provide verification of personal income and funds. All or part of the reverse mortgage funds then cover the remaining cost of the home, just like with a traditional mortgage.
The benefit to financing with a reverse mortgage is that instead of paying the loan back every month over time like a traditional mortgage, reverse mortgage repayment is deferred to when the loan matures.”
This means no monthly mortgage payment – payment is due when the house is sold or the inhabitant dies. Keep in mind that you’re not building up equity in that second home, and there could be very little left in equity once the reverse mortgage is paid off.
When you’re thinking about financing, you should also consider what repairs or improvements will be needed in the home for it to be a safe and comfortable place for you to live as you get older. For example, what will the cost be if the bathroom needs a remodeling for it to be more accessible for you or your spouse? Or are there outdated appliances in the home that will need to be replaced soon? It’s important that you’re clear on all the home’s needs before making a buying decision as repair costs can add up quickly.
Remember, you do not have to make these tough financial decisions on your own. It’s best that you talk to a financial advisor to come up with a budget for your new home and to figure out the best way for you to finance your new home.
How am I going to handle the move?
Moving is tough on anyone – regardless of age – but it can be especially taxing on seniors. You need to plan. Don’t be afraid to de-clutter. Hold yard sales and distribute meaningful items to friends and family. Slowly pack boxes as to avoid injury and strain. For most seniors, it may be best to hire professional movers if you don’t have family members that can help you move.
If your senior parent or other loved-one needs to downsize or find a residence better suited for them, a SRES®-designated REALTOR is best trained to handle your loved-one’s real estate needs. PEMCO Realty has a team of Senior Real Estate Specialists ready to assist you or your parents to make this a smooth process.