“Mr. Dolan, did you say I can buy a new home and maybe receive a monthly check from my bank?” – Yes
Let me explain. We’ve talked in these columns in the past about the frequent “gap” that arises when one sells an existing home to buy a new home—often a retirement home. For instance, the existing home might sell for $125,000 and the new home costs $175,000 creating a financial shortfall of $50,000. Traditionally, the buyer might take those funds from savings or secure a home mortgage of $50,00 to fill the need.
Today, those options remain the best solutions for many buyers. They are fairly simple to execute and they are easily understood. But there is an alternative that is gaining in popularity that meets the needs of many families considering retirement. It’s generally called the “reverse mortgage.” A borrower with a regular mortgage makes a monthly payment to the lender, typically a bank. A borrower with a reverse mortgage receives a check from the lender—monthly, in one lump sum or in periodic amounts.
99% of seniors want to age in their own homes
Recognizing that some 99% of seniors would prefer to age in their own homes, but that some may lack the funds to do so, Congress passed legislation to allow seniors to apply the equity built up in their existing homes to help facilitate that. Thus, reverse mortgages came into being. Lenders can issue funds monthly, in one lump sum or periodically to help pay taxes, make home repairs or to make home modifications such as a new bath or kitchen.
…but for some seniors, the existing home isn’t functional
Regrettably, some older homes do not lend themselves to the needs of their owners in spite of reasonable improvements. For example, some homeowners may need all amenities on one floor but their two-story or tri-level split may not allow for this. Or the home’s location may be too far to allow for visits by family or friends. Or the existing home may be too large or too expensive to maintain. So, realistically, a more user friendly home in a more convenient location may be “what the doctor ordered.”
Possibly no cash needed to buy the new home
Selling the existing home, buying a new one and securing a reverse mortgage may be a viable solution to allow seniors to “age in place” without the need for additional out-of-pocket cash. Moreover, it may also be possible to receive a monthly or periodic check from the lender, if desired. Here’s essentially how the system works:
1.As you prepare for the sale of your existing home you secure a reverse mortgage for the new home based on the estimated sale price of your home and the planned purchase price of your new home. We can help you identify lending sources for this financing.
2.When the lender approves your reverse mortgage, you apply the proceeds from the sale of your existing home to the purchase of the new home.
3. If you advised the lender of a possible “gap” between your sale proceeds and the estimated purchase price, that will likely be covered by the reverse mortgage without your adding cash to the transaction.
4.Depending upon the value of the new home and your equity in it, the reverse mortgage may also allow you to receive a monthly check to cover your taxes or other expenses.
5.You make no mortgage payments for the time you remain in the home.
6. Upon your eventual moving from the home, the home is sold and the mortgage borrowings are repaid using the proceeds of the sale. Any funds left over are paid to you or your heirs.
7.Regardless of how long you live in the new home, you or your heirs never owe more than the value of the home.
“There’s no place like home”
There are certain costs associated with putting a reverse mortgage in place. And this form of financing might not appeal to all buyers. However, it’s many advantages may very well allow you to move into the kind of home that you want without spending any cash up front. And for many, the ability to age in place is very appealing versus the need to enter a nursing home. The old saying of “there’s no place like home” certainly has merit.
Visit any of our open houses on weekends. Hours are posted on our web site at www.DanDolanHomes.com. The host Realtor will be happy to review the process with you and, of course, you can always reach me at 563-570-1460 or contact Don Gibeault at 563-650-8007. Consider taking advantage of this unique tool to allow you to age in place in your own new home.