September 10, 2009

Senior Housing

danIf you are a senior thinking about looking into housing “in a year or two” I’d like to give you several reasons to consider “doing it now.”

By Dan Dolan
Dan Dolan Homes

There’s no doubt the recent major decline in investment portfolios has sensitized more seniors to the need for “preserving wealth.” And we all hope that the various economic stimulus programs help to restore our investment portfolios to where they were before the decline. But meanwhile, life continues and lifestyle decisions must be made. Decisions like housing.

More and more I hear senior visitors to my weekend open houses planning on “doing something in a year or two.” In many cases they hope the restoration of their wealth will facilitate the decision. Maybe. Maybe not. I’m apprehensive. Here’s why I think the time to act is now and not later.

Rising costs are creeping in
We are in a period of low mortgage interest rates. I happen to think that a reverse mortgage for purchase of a new home is the best way to go. In part, prevailing mortgage rates dictate the amount of the down payment. The lower the rate, the lower the down payment. But the prevailing wisdom is that mortgage rates will be going up thus raising down payments. That will require more homebuyer capital, not less. Additionally, rising building costs, including rising land costs, are on the horizon. During the recent downturn all the construction factors were doing their best to reduce or at least not increase costs. But already I’m seeing increases sneaking in. In fact, we’ve had to reflect some cost increases ourselves.

That’s why I continue to encourage all prospective homebuyers 62 and over to at least consider a reverse mortgage as a valuable tool in facilitating the purchase of a retirement home. The reason: With a relatively modest one-time down payment, a senior can own a very comfortable home with no further home payments ever for as long as at least one of the borrowers remains in the home. We are happy to explain this program to visitors at any of weekend open houses. Or by special appointment at their convenience.

Reverse Mortgages for purchase help to preserve wealth
In my opinion, the benefits of a reverse mortgage are compelling:

  1. The most a buyer will spend for living in their new home for as long as they wish, is essentially equal their down payment. All they pay beyond the down payment is annual real estate taxes, homeowner’s insurance and the $65 monthly association fee we charge for lawn maintenance and snow removal.
  2. It is possible that the homeowner’s estate could even receive a partial refund of the initial down payment upon the sale of the home and the payoff of the reverse mortgage when the home is eventually vacated and sold.
  3. The owner’s or the survivor’s final obligation never exceeds the sale value of the home. There’s no residual mortgage balance so heirs are not left with a debt to pay off.

In many instances, seniors using a reverse mortgage for purchase free up the excess equity from their existing home. That also has the potential of enhancing their portfolio because those funds can be reinvested with the potential for earning interest.

Seniors prefer to live in their own home
I encourage seniors to compare that “guaranteed” living cost to the ongoing monthly rents of $3,000 or $4,000 associated with many of the independent living facilities in the area. For one thing, the meter keeps running year after year so a 3-year-rental could cost upwards of $100,000 often plus initial payments of thousands. A longer stay could double or triple that amount.

There’s a lot of comfort related to having a real home to live in as opposed to the “hotel ambience” of an independent living facility. Having 2 bedrooms, 2 baths, a real kitchen, first floor laundry, no step-entry, full basement for storage and no need to mow the lawn or shovel snow all provide a reassuring quality of life.

What we have found is that typical buyers of our $184,900 town homes have lived in their current home for 15 to 30 years (sometimes longer) and they walk away from the sale of their existing home with $100,000 to $150,000. After making the down payment on their new Dan Dolan town home they have money left over to save, invest, pay college tuition for a grandchild or even travel. By way of example, the down payment for a 76-year old buyer using a reverse mortgage to buy our $184,900 town home would be about $65,000 or so. The exact amount depends on mortgage rates, bank fees, etc. at the time of closing. In this example the buyer(s) walking away from the sale of their existing home with $125,000 would have some $60,000 left over after making their down payment. That could go a long ways towards rebuilding the “nest egg” that was bruised in the current economic downturn. Of course any home purchase can also be executed using a conventional mortgage or old-fashioned cash as well.

In summary, I believe that for many reasons it is more cost effective for seniors to buy their retirement home sooner rather than later. For one thing, they may be more physically agile today than they will be in a year or two. But perhaps more importantly, I happen to think that from a financial standpoint they will be better off.

For more details on our available homes, prices, reverse mortgages or to just look and talk, visit one of our open houses any weekend. In Davenport we are off 53rd St. across from Fareway Market. We are open Saturdays and Sundays 1 to 4 PM. For added information or to set up a private showing call Don Gibeault at 650-8007. For information, appointments, or open house hours at our sites in Blue Grass, Muscatine or LeClaire call Dan Dolan at 570-1460 or call the Dan Dolan Homes business office at 563-381-4088. And you can visit us on the web at