By George Downey
Thoughts of selling the family home is one of the most challenging considerations confronting aging homeowners. The home has become the foundation of their lifestyle and identity – where we feel comfortable, safe, and the storehouse of fond memories. Numerous surveys confirmed the overwhelming majority (80 percent +) want to remain in their home and age-in-place.
The reasons, however strong, are predominantly emotional and may lack foresight to the predictable changes and challenges of aging. The home doesn’t change. We change – as the challenges of aging affect our health, finances and capabilities. A better question may be: Where do I need or want to live in the next (fill in the blanks) ___ to ___ years, and why? Two choices emerge – stay at home to age-in-place, or sell and relocate.
In a very real sense, this becomes a fork in the road – which way to go? Either way requires thoughtful consideration of the benefits, costs and consequences. Beyond the personal issues influencing the decision, objective assessment of future needs and financial resources is the most important next step. These deliberations may appear overwhelming leading to uncertainty and procrastination. The answer, however, is crucial. The assessment and planning process may be made easier and more productive if facilitated by a trusted and competent advisor.
STAYING AT HOME TO AGE-IN-PLACE
Since aging-in-place is what most desire, the considerations now turn to suitability. Are repairs, improvements, or modifications needed to make the home safe and accessible? What are the costs and are they affordable now and for the longer term? How will the costs dilute savings and future cash flow?
If the financial assessment is positive, the cost/benefit projections are fairly easy to determine. Affordability may be enhanced if there is sufficient housing wealth (home equity) available to partially or entirely pay the costs. Depending on individual circumstances, options include: refinancing with a traditional mortgage, adding a second mortgage or home equity line of credit (HELOC), or refinancing to a HUD/FHA insured Home Equity Conversion Mortgage (HECM).
The government insured HECM was designed around the limited income and financial resources of homeowners 62 and older. Accordingly, Congress developed the program to accommodate those limitations. Prime features include: no monthly payment obligations (voluntary payments are permitted but not required); no maturity date until no borrower resides in the property; a growing line of credit; and, no give-up of home ownership to name a few.
SELLING AND RELOCATING
If the decision is to sell and relocate, the best time to sell is when you don’t have to, and when real estate values are high. Today (July, 2018) real estate values in many regions are at record highs due to an improved economy, shortage of homes for sale, and increasing numbers of prospective buyers. Additionally, the ongoing trend of low mortgage rates today facilitates home purchase financing and higher prices.
Senior Buyer Dilemma. While the markets may be ideal for sellers – buyers, especially senior buyers, are challenged to find an affordably priced home. Real estate sales data shows approximately 28 per cent pay cash, usually from the proceeds of selling their home, to avoid future mortgage payments. Senior buyers typically relocate to smaller lower priced homes that may be more affordable. Unfortunately, the Catch-22 of today’s higher values for sellers vs higher purchase prices for buyers may discourage exploration. Fortunately, the HECM may provide a solution.
Senior Buyer Solution. The HUD/FHA insured HECM for Purchase (H4P) program provides a unique solution for qualified senior buyers. The buyer’s required minimum down payment generally works out to be about 45% to 62%* of the purchase price vs 100% (when buying for cash). These are age-based loans that allow older borrowers to qualify for more in loan proceeds.
The H4P program enables buyers to make a smaller down payment – financing the balance with a HECM. Buyers benefit from: (1) increased savings from reduced down payment, and (2) no monthly mortgage payment obligations. The following chart demonstrates the purchasing power relative to buyer ages and minimum down payment requirements.
Additionally, the H4P program may enable buyers to upgrade (right-size) to a higher priced home, or add improvements to upgrade the home.
|Age||Down Payment Required|
*Examples shown are for illustrative purposes only. Actual down payment amounts vary based on interest rate, borrower age and other factors. Source: National Reverse Mortgage Lenders Association
NEW CONSUMER REPORT
The National Association of Reverse Mortgage Lenders published a comprehensive 17 page report entitled, Should I Stay or Should I G0? A Toolkit for Choosing the Right Home Environment. The report emphasizes – a house is brick and mortar; a home is a house with accessibility, support and comfort.
The objective of this toolkit is to help plan for later life by explaining the wide selection of housing possibilities. “Housing First” has become a mantra among experts in aging. Once settled in the right home, one can tackle any other issues that may come along.
To Receive A Copy of the Report: Call: 1-(800) 599-8700, or email: GDowney@HarborMortgage.com
About the Author
George Downey (NMLS 10239) is the founder of Harbor Mortgage Solutions, Inc., Braintree, MA, a mortgage broker licensed in Massachusetts (MB 2846), Rhode Island (20041821LB), NMLS #2846. Questions and comments are welcome.
Reprinted from the August 2018 edition of the South Shore Senior News.