March 31, 2010

The Search for Senior Housing

danBy Dan Dolan
Dan Dolan Homes

What Frank and Linda told their mom and dad about the search for senior housing and preserving their wealth

One of the satisfying aspects of my work with seniors is the opportunity that I get to meet many of the offspring who work with their parents to help them select the very best housing option. There are several ways that this takes place. Ryan’s parents were living in Florida, and his assignment from mom and dad was to scout out the various QC locations that he thought they should visit on their pending housing trip to the area. They had been living in the Sunshine State for several years, but the rising cost of homeowners insurance there, brought on by the recent frequent storms, had been causing their housing costs to skyrocket. And the desire to be closer to Ryan and his family was also an important consideration. So Ryan had his pad, was asking me questions and taking photos to send to the folks to illustrate his findings.

With Frank and Linda it was a little different. Mom and dad were already living in the area and the assignment here was twofold:

1) To find “the best” all-on-one-floor accommodations to replace the current older, stair-studded home with the large high-maintenance yard and,

2) To visit bankers, financial consultants, builders and anyone else who could offer input on how best to achieve the housing need while helping to preserve the financial assets that mom and dad had worked so hard to achieve.

Armed with their findings, Frank and Linda would suggest some possible options to their parents and if accepted, the family move would begin. I was pleased to work with this brother and sister team and feel that I was able to provide input that the family found helpful and appropriate to their needs.

While mom and dad were both currently mobile, they wanted a new home that would allow them to “age in place.” Specifically, should either of them need a wheelchair or walker to get around in the future, they wanted a new home not only all on one floor but which could facilitate mobility, bathing, laundry and easy access to all the home’s amenities. They were interested in efficient utilities, a full basement for storage and a two-car garage. I was happy to point out that our town homes at all locations in Davenport, LeClaire, Blue Grass, Muscatine, Clinton and Iowa City all met their criteria. Additionally, we featured an insulated wall between units for a safer, quieter environment. And our homeowners’ association monthly fee for lawn maintenance and snow removal was still only $65 a month.

Linda was particularly impressed to find that our town homes are not subject to any future “assessments” for street repair, roof replacement or other common area maintenance. The reason: Our town homes are not condos where the association owns and maintains all the outside space. In fact, our homes are “zero lot line homes” meaning that homeowners own the inside and outside of the home and the yard so they can plant a tree here or flowers there if they so choose. Pets are allowed. The homes are built on a public street as opposed to “private” streets that are maintained by the homeowners. In other words, our homes are just like the “regular” home they currently own. But we mow the lawn and remove the snow. “It’s carefree living‚” Linda suggested.

When it came to mom and dad’s estate plan and desire to preserve as much of their hard earned wealth as possible, I reminded them that I’m not an estate planner, but that I could share some of the experiences of our buyers who faced the same situation. We have buyers who pay cash for their new home. They believe that their home represents their primary investment and that they prefer not to have to deal with a monthly mortgage payment. I indicated that we accept cash at a closing, but I reminded Frank and Linda that the home will appreciate at the same rate regardless of the amount of equity in the home. In essence, then, the equity in the home is not earning any investment return. Conversely, the homeowner is not incurring any mortgage interest expense.

Other buyers elect to put down 20% of the purchase price and use a conventional mortgage to cover the remainder. In some instances, they use the proceeds from the sale of the existing home and/or other investment returns to cover the mortgage payments. For them that is the preferred home financing option. That probably would not be my preference.

A very popular home financing option since January of 2009 has been the use of the Reverse Mortgage for Purchase. Prior to that date, Reverse mortgages could not be used to buy a home. They were strictly a source for releasing the available equity in your existing home to either help make home repairs or to receive an income stream to supplement living expenses. A Reverse Mortgage for Purchase works differently.

Since Congress approved the use of a Reverse Mortgage for Purchase of a home, a home buyer makes a one-time down payment, takes title to the home and lives there as long as desired. Upon vacating the home, it is sold, the proceeds are used to liquidate the mortgage balance and the excess proceeds go the homeowner or the estate. However, the liability never exceeds the value of the home so neither the homeowner nor the estate are ever left with a remaining “balance due.”

What homebuyers like about this mortgage:

The down payment is based on the age of the younger borrower. The older the borrower, the lower the down payment. For instance, a 76 year old buyer of a $200,000 home would pay about $80,000 down. There are no further mortgage payments ever. Owners pay their real estate taxes, homeowners insurance and the $65 monthly fee for lawn maintenance and snow removal. That’s it.

Because there are no monthly mortgage payments, housing expenses are fixed so income such as social security benefits or pension benefits can be used for living expenses generally without need for withdrawing from a 401K or other investment accounts.

Any funds from the sale of the existing home not used for the new home down payment can be invested as desired.

Should the husband or wife become incapacitated or pass, the remaining member needs not be concerned about the source of funds for mortgage expenses. There are none.

Upon the passing of both mom and dad, the estate need not worry about how to pay off the mortgage. In fact, there may be proceeds in excess of the mortgage payoff that would revert to the estate.

Unlike the monthly living expense in a nursing home or adult community that could total over $30,000 annually, Reverse Mortgage for Purchase borrowers have no such cost fears or obligations.

Frank and Linda, mom and dad made several visits to our model homes before selecting the one that best met their needs. The family agreed to apply for a Reverse Mortgage for Purchase. The existing home was sold and there were proceeds in excess of the required down payment that have been invested. After the move was made and the pictures hung, mom and dad took their very first cruise knowing that their objectives had been met and they could now enjoy their new home with no monthly mortgage payments, with stepless entry and the amenities that would allow them to age in place.

If you are a mom and dad, mom or dad or a devoted offspring, relative or friend helping a senior to make the housing decision, we encourage you to visit one of our open houses to see and hear the Dan Dolan Homes story and the financing options available to you. In Davenport, we are across from Fareway off 53rd St. where we have homes from $179,900 to $271,300. Don Gibeault, our Realtor host, is there Saturdays and Sundays from 1 to 4 PM. We are also open in Blue Grass and Muscatine. Call me at 563-570-1460 for the current hours. We hope to see you soon.