August 3, 2012

What a home buyer taught me about a Reverse Mortgage for Purchase

danBy Dan Dolan
Dan Dolan Homes

What a home buyer taught me about a Reverse Mortgage for Purchase and saving $70,000 a year in assisted living costs

Once again, I learned a lot from a home buyer. Those of you, who read my column in this publication, may recall that my weekend open houses are a constant source of information for me. It’s my best source of consumer research and has led to some wonderful ideas, including a home nearing completion at Stone Gate East. With so many seniors now wanting an office on the main floor, I was urged to transform our traditional 3-season room to a 4-season room that could be used as an office, but also as a guest room, den, TV room or any combination thereof. That home should open for viewing sometime this month. It’s a great idea!

Along the same lines, many of you know we have supported the mortgage program approved by Congress a couple years ago, whereby seniors age 62 and over could purchase a Dan Dolan home with a moderate one-time down payment with no further mortgage payments ever, for as long as the buyers remain in the home. While reverse mortgages have been around for a long time, the Reverse Mortgage for Purchase is relatively new and specifically designed to facilitate the purchase of a home by seniors. Many of our buyers have used the RMFP, and we think it’s a good idea, but that’s a determination individual buyers must make for themselves.

We have largely promoted the RM as a tool for allowing seniors to “preserve their capital.” And we think that it is. More specifically, by taking a portion of the proceeds from the sale of the existing home, using it for the minimum down payment on the new home—and investing any excess proceeds—the home buyers are getting a return on the surplus funds. For one buyer we know, that’s several hundred dollars a month. Additionally, by not having to make a monthly mortgage payment, the buyer preserves cash flow, and that often precludes the need to dip into the 401K to make those monthly payments. Again, that’s a preservation of capital. And we see all of that as very desirable.

But, here’s what’s “new.” One buyer told me that unless she moved to a home with all-on-one-floor living, she would soon need to move into an independent living facility at a cost of about $70,000 a year for her and her husband. Her current home is a split-level, with the laundry in the basement. And, she must climb eight stairs to the kitchen whenever she drives into the garage. That has become difficult, and she sees that becoming impossible soon. Her current home should sell for about $125,000, and the couple has paid off the mortgage.

As she described it to me, by selling her current home and buying a $250,000 Dan Dolan Homes town home at Stone Gate East, she will have enough funds for the RMFP down payment, she will have no monthly mortgage payment, she will do away with all those stairs, she will now live in a new, low-maintenance, energy efficient home with no lawn to mow or snow to shovel, and she will be living in a highly desirable part of town that’s close to everything. Or, as she asked her husband, “what’s not to like?”

For this couple with modest resources, a possible $70,000 annual outlay for an independent living facility would have depleted their resources in about two years. Instead, by using a Reverse Mortgage for Purchase, the couple can live in their new home—an improved new “own home”—and they can hold on to their resources without a need to make major monthly payments. As I pointed out to the couple, this is also a form of preservation of capital, but from their perspective, it insured a higher quality of life with greater comfort than they could ever achieve in their current home, along with the peace of mind there would be no need for an ongoing $3,000 monthly fee for an independent living facility. Once again, what’s not to like?

For a full explanation of how a Reverse Mortgage for Purchase might be of help to you, visit one of our home sites any weekend in Clinton, Bettendorf, Blue Grass, Muscatine or Davenport. In Davenport, our model home in Stone Gate East is open 1 to 4 p.m. Saturdays and Sundays. Stone Gate is on Eastern Avenue just 500 feet south of 53rd Street.