Ways to Buy a New Home When You Already own a Home

Hello readers!  I apologize that it’s been forever since I posted, but I have been extremely busy selling houses, and it’s been tough to fit in writing and posting.  But I do enjoy writing these posts and the clients I get to meet as a result of them, so I will try to post more frequently.

One of the questions I get asked most frequently is, if I already own a home, how do I buy a new home? I am happy to tell you some common ways to do this, but I urge you to talk to a loan officer or an accountant if you have detailed questions about the loan side of things.  This list is not all-inclusive.  It just contains some of the most common ways of making it work.

1)  Put your current house on the market, with the understanding that your realtor (could be me if you live in MD, DC or VA) will tell whomever wants to write an offer on it that you need a 60-day rentback.  Then, you settle (meaning you officially sell your home and collect your proceeds from the sale) in, say, 30 days, and then you have the next 60 days, while living in your current home, to find a new home, settle on that home, and move. 

Advantage: This is the simplest way to make a move, in my experience.  You have the money from the sale of your house, but you don’t have to move twice. 

Downside: You have to be reasonably confident that you will find somewhere you want to move in that 60 days.

2)  Take out a home equity loan on your current home to have a down payment for your new home. Then, take out a conventional loan to pay for your new home.   Once you sell your old home, you pay off the loan (or pay off a lot of it, anyway). 

Advantage: You can buy a home whenever you find one you love, and then sell your old home.  You can even move into the new home first so you don’t have to worry about de-cluttering your old place, or leaving it all the time for showings.  As I said above, you can get a conventional loan when you do this (rather than a bridge loan, which tends to have a higher interest rate and more fees), but you need to wait six months in most cases before you’re allowed to pay off the conventional loan.

Downside: You have to be able to qualify for another loan while you might still be paying off the mortgage on your original home. You might have two mortgages for a period of time, and you’ll have to be able to handle that.

3)  Borrow or withdraw from your 401K or other retirement plan to buy your new home. When you sell your old home, pay back the money into your retirement plan.  This is the option I know the least about, in terms of tax implications, interest, etc.  If you are considering this option, I strongly recommend that you speak to an accountant so you fully understand how this works.    

Advantage: You don’t have to sell your current home first. You can find a home you really want before selling.

Downside: There could be tax implications, and well as having to pay interest on the loan.

4)  Sell your current home, collect the proceeds, and then rent a home until you find something you’d like to buy.

Advantage: You can take your time to find a home that you really love, and you have the money ready as soon as you find something.

Downside:  You have to move twice.  Enough said.

5)  You put a contract on a home, contingent on your selling your current home.

Advantage: You can take your time to find the home you want, and you’re protected from being locked into the deal until you know that your home will sell and you’ll have the money to buy the new home.

Downside: At least in the DC metro area, it is very hard to find a home seller who will agree to this contingency.  Desirable homes go under contract very quickly here, and most sellers don’t want to take on the risk of waiting for your other home to sell.  Also, even if they agree to it, the contract will still have something called a “kick-out.” That means if any other buyer comes along and wants to put a contract on the home, you will have 3 days to come up with money another way, or lose the home to the new buyer.  Now, most buyers don’t search for homes “under contract with a kick-out” so that gives you some measure of protection, but it’s still possible you’ll lose the home.  This option does sometimes work if you find a home you want that’s been on the market awhile. But, you have to get your home on the market within 3 days of putting the new house under contract.  It’s easier if your home is already on the market, or completely ready to put on the market.

Guest Post: Using a Home Equity Conversion Mortgage to Purchase a Home

First off, a little FHA “refresher.”  The HECM, or Home Equity Conversion Mortgage, is just FHA’s fancy name for the reverse mortgage.  You’ll hear terms like “HECM for Purchase” or “Reverse Mortgage for Purchase” or “H4P” or “R4P”.  Just to be clear, these all represent the same product – the reverse mortgage.

In 2009, FHA began allowing the reverse mortgage for the purchase of a new home.  Prior to 2009, the reverse mortgage could not be used to acquire a new home.  It could only be used on homes that borrowers were currently occupying, and intending to continue to occupy.

With allowing borrowers to use the reverse mortgage to purchase a new primary residence, a new opportunity arose for homeowners looking to downsize to a new home. The best part is they could now do so with no monthly mortgage payments, and also give them the ability to just about double what they could afford as a cash buyer.

Let’s say we have a 67 year old borrower that wants to sell their existing home and purchase a new primary residence. Maybe it’s to move to a one level home, or maybe there’s too much land, or maybe it’s just to be closer to the grandkids. Regardless of the reason, they don’t want to stay in their existing home.

Using the HECM for Purchase, that borrower could sell their existing home, take the cash proceeds and use it as a down payment on a new home. There are a few substantial benefits to using the HECM for Purchase as opposed to paying cash and/or using conventional financing to buy the new home.

Benefit #1 – Increase the purchase price of the new home.

Using the HECM for Purchase, the borrower will get access to approximately 50% financing on the new home. Meaning, if the borrower has $200,000 in proceeds from the sale of their existing home, they could essentially double their purchasing power.

Example – Using the $200,000 in proceeds, they could afford to purchase a new home for approximately $400,000. The reverse mortgage would provide financing for approximately 50% of the purchase price ($200,000) and the borrower comes up with the remaining 50% ($200,000).

Benefit #2 – Keep more cash in reserves.

Let’s say the same borrower has the same $200,000 in proceeds from the sale of their home, but instead of using it all to buy a new home they want to keep some cash in hand.

Here’s how this would work….

Example – The borrower finds a $200,000 home they’d like to purchase. Instead of using all $200,000 of their proceeds to pay cash for the home, they use the reverse mortgage to provided financing for 50% of the purchase price ($100,000) and they come up with the remaining 50% ($100,000).

This would give them the ability to buy the new home, have no monthly mortgage payments and keep $100,00 of the proceeds in their control.

Benefit #3 – Income / credit qualification.

While there are income and credit requirements on reverse mortgages, they’re not the same as a conventional “forward” mortgage. The majority of reverse mortgage borrowers are at a stage in their life where they’re no longer working full time jobs and are instead living off of a “fixed” income (Social Security, pension, investment portfolios, etc.). Because a conventional type loan requires a monthly payment, the borrower normally doesn’t show enough income to meet the underwriting requirements for the new loan.

On a reverse mortgage, the lender is not required to calculate a monthly mortgage payment in to the equation, because there are none.

Instead of using an equation that calculates total debts and divides them in to the total income, the reverse mortgage simply requires an amount of “residual income.” In our area, it’s $529 per month for a one person household.

Benefit #4 – No monthly mortgage payments.

I think this benefit pretty much speaks for itself, so I’ll keep it short and sweet.

When a borrower initially tells us they want to pay all cash for their new home, that’s normally for one reason…

They don’t want a mortgage payment.

With the reverse mortgage, they have no monthly mortgage payments.

This article was written by Eric Rittmeyer with Fidelis Mortgage, and used with permission. For more information about using a reverse mortgage to purchase a home, please contact Eric at eric@fidelismtg.com or 410-668-6501.

Guest post: Excerpt from The Complete Guide to Caregiving

Does Your Loved One Need Live-in Help or an Assisted Living Community?

Seniors who exhibit signs of Alzheimer’s and the symptoms of dementia may require different levels of support, depending on their condition and their living environment. Individuals with more severe problems who have trouble coping with activities of daily living such as eating, bathing and toileting, likely need in-home care assistance, while those who are aging in place and can handle basic tasks of everyday living may require help of a different sort. You should be able to tell the difference in the level of care your loved one requires by recognizing the signs of Alzheimer’s.

Deciding to seek outside help can be difficult. Some seniors may resist the notion that they need help, or they might have trouble adjusting to a live-in caregiver, even a friend or family member they’ve known for many years. Maintaining a loving, nurturing and patient relationship with your loved one can help build the trust that’s needed for a successful caregiving relationship to take shape.

Recognizing the signs

The warning signs of dementia and Alzheimer’s indicate a decline in cognitive functioning and a decreased ability to function normally. Bear in mind that it can be difficult to tell when something’s wrong. Memory loss, a common symptom, may seem to be nothing more than an occasional forgetfulness associated with the aging process. Someone with Alzheimer’s disease may forget a grandchild’s name, then recall it the very next day. In more advanced cases, people suffering from the debilitating effects of Alzheimer’s will forget things that happened a moment ago, what was just said in a conversation, or start repeating themselves because they have no recollection of previous verbal exchanges. Forgetfulness caused by stress or anxiety won’t repeat itself; in dementia, the problem will persist and progress as their condition worsens.

Frustration and anger will show up in mood swings and increasingly agitated behavior. It may also manifest as manic physical movements, such as pacing or waving their hands in the air, or gesturing angrily. It’s a common response to confusion and fear, feelings that are often present in people who struggle to make sense of their environment. Poor judgment and taking chances the individual usually wouldn’t is another sign of trouble, and can lead to injuries. Or they may suddenly struggle with activities that once came easy, such as cooking dinner or doing laundry.

Aging in place: care needs

According to AARP, over 90 percent of adults over 65 would prefer to stay at home rather than moving to a senior living community. Those whose symptoms are manageable and can still function, there are certain conditions that should be met if they are to remain at home. Isolation is a major problem with the elderly, so make sure that friends and family members live nearby. The physical characteristics of the living environment should meet certain standards. There should be adequate lighting, and no objects capable of causing your loved one to trip and fall.

Benefits of home health aides

If your relative is having trouble paying bills or maintaining acceptable personal hygiene, it’s probably time to bring in a home health aide. Your family member will benefit from the presence of a friendly companion and personalized care. In-home care allows your loved one to remain at home and retain a measure of independence. Home health assistants make sure that their care subjects take their medications as prescribed, eat a healthy diet, and get sufficient sleep.

Deciding on what level of care a loved one needs can be difficult. He or she may actively resist the idea and descend into even more troublesome behavior. Bear in mind both your relative’s condition and temperament as you determine the best option.

When moving is necessary

Although your loved one might prefer to live at home, selling their current home and moving them into an assisted living facility might be the best option, especially as the disease progresses. Those with advanced Alzheimer’s disease are prone to wandering, extreme confusion, and aggression, so a home environment might not be the safest place for them. Even with live-in help, caring for your loved one is stressful. Consider the fact that they might benefit more from having a team of individuals dedicated to ensuring their needs are met. Should you decide that an assisted living facility is the next step, keep the special needs of your loved one in mind. Tour several facilities to be sure the one you choose caters to Alzheimer’s behavior, and don’t forget to ask if they are equipped to work with late-stage patients, as some facilities will require a transfer.

June is the primary caregiver to her 85-year-old mom and the co-creator of Rise Up for Caregivers, which offers support for family members and friends who have taken on the responsibility of caring for their loved ones. She is passionate about helping and supporting other caregivers and is currently writing a book titled, The Complete Guide to Caregiving: A Daily Companion for New Senior Caregivers, due out in Winter 2018.

The Greens - Leisure World of Maryland

Click to see all floorpans for The Greens

I frequently sell homes at Leisure World, and one of the most popular neighborhoods (called mutuals) there is The Greens.  The Greens is made up of four high-rise buildings, located on the golf course, and within walking distance of Clubhouse II.  Clubhouse II contains Leisure World’s brand new fitness center, as well as the indoor pool, the auditorium, the ceramics studio, and various game rooms and meeting rooms, so it’s a nice place to be close to.  All of the buildings were constructed in 1984.

Each building in the Greens has a large meeting room with a kitchenette and a small library on the lobby floor.  These meeting rooms are used for social events within the building themselves, and can also be rented out for private parties.  Each building also has a parking garage attached to the lobby and the basement.  Some condos come with a parking spot and some do not, so that’s something to pay attention to when buying there.  Also, each condo has some storage space in the basement.  Some condos come with storage rooms, which are about the size of a typical half bathroom in a home.  Many condos just come with a storage cage, which is about the size of an old-fashioned steamer trunk.  Again, that’s something to pay attention to when buying, if storage is important to you.

The monthly condo/community fee varies according to the square footage of the unit, etc.  The monthly fee for all of the units includes almost all of the amenities at Leisure World (see my general post about Leisure World to read about those), as well as Basic Cable TV, Common Area Maintenance, Exterior Building Maintenance, Lawn Maintenance, Management, Master Insurance Policy, Reserve Funds, Sewer, Snow Removal, Trash Removal, and Water.  The monthly fees for the units currently on the market range from $673 for 1115 square feet to $809 for 1530 square feet.

The prices for the units sold at The Greens in the last six months range from $122,500 for a 1-bedroom, 1-bath unit with 945 square feet, to 335K for a fully updated 3- bedroom, 2-bath unit with 1650 square feet and a garage space.   Many of the units at the Greens have original kitchens from when they were built in 1984, which I believe makes their sale prices lower than in many parts of Leisure World.

Clients often ask me to see all floorplans available at the Greens.  For your convenience, I am posting them here.  You can see that every unit comes with a lovely three-season enclosed balcony.  Almost all the units in all of Leisure World have a three-season enclosed balcony, which is a very popular feature.

If you or someone you know is considering moving to Leisure World, please feel free to contact me.  I’d be happy to help!