Having Money When You Don’t Have Money (Part 3)
(Eating An Elephant One Bite at a Time – Part 3)
Part 1 of this series described the unique set of circumstances seniors face when moving out of their long-held family home, and how to break this overwhelming transition into manageable steps. Part 2 emphasized the importance of speaking with financial and legal professionals as the first step in the process. Part 3 offers ideas on how to fund your next move (whether it be assisted living or downsizing to a condo, etc.) prior to selling your current home.
Seniors (particularly if you’re Golden) often own your homes outright, meaning you have no mortgage. Others may have to pay off mortgages or untangle trusts that might limit transference of (selling) your home. Paying off mortgages and untangling trusts does not necessarily have to be done/completed prior to moving to your next home. There are a number of “creative” and affordable ways to purchase a new home before you sell your old home:
- Using a home equity line of credit (HELOC) to raise a down payment to purchase or fund your new home.
- Taking out a Home Equity Conversion Mortgage (HECM) or “reverse mortgage” that uses the equity in your current home, to buy (or fund) your new home, or for the down payment (Note: HECMs can be complicated, but incredibly useful in the right situations. The law requires that you consult with a HECM counselor prior to securing one).
- Taking out a short-term “bridge loan” specifically for the purpose of purchasing your next home.
This is another area where your financial planner can help you! He or she should have a general understanding of each of these financial tools and can connect you with a bank, a lender, or a mortgage broker who will fully describe each, and help determine which might be best for your situation. The important thing to bear in mind is that there ARE ways to purchase a new home (or acquire money for a down payment at an assisted living or other housing option) prior to selling your old home.
No Loan? No Problem!
If you are completely uncomfortable with the idea of taking out any kind of loan prior to buying your new home – and many seniors are - you still have options. If “downsizing” is your next step, and you’ve identified a property that meets your needs, your Realtor can write an offer for that home containing a “home sale contingency”. Using a home sale contingency will give you a fixed amount of time to sell your home before paying for the new home. Depending on the market you’re in, this type of contingency may weaken your offer, but your agent can show you how to strengthen it in other ways.
Most folks will need the money from the sale of their current home, in order to purchase their next home. Some are comfortable making a contingent offer as described above and then selling their current home. Others are committed to selling their home first, and then hoping to find the home of their dreams. Unfortunately, the process doesn’t always go smoothly. Sometimes, your home sells prior to you locating a new home. One way to ensure you don’t get left out in the cold is to counter any offer you receive on your home with a “suitable housing contingency,” which tells the buyer of your home that you won’t sell unless you find somewhere to live that suits you. “Suitable housing” is anything that’s suitable to you - the seller. It could even be a temporary rental.
The important takeaway from this article is to understand that it is possible to afford your next housing option before you sell your current home. Knowing this may help reduce some of the stress and anxiety of taking the next bites of the elephant known as “moving.”
For more information about The Elephant Guide, please visit my real estate site at Marbleheadhomes.net.