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Timing is the key for retiring and selling your home

If you’re a homeowner who’s retiring soon, you might be wondering: Is now a good time to sell my property and move to my retirement destination? With prices (and now interest rates) rising, and inventories continuing to plague buyers, it’s understandable to feel unsure. But here are a few reasons why it’s something you may want to consider.

It’s a strong sellers market.

Sellers in most suburban areas are seeing a huge spike in demand, mostly from city dwellers, for homes with more square footage, amenities and yards. However, low inventories are forcing prices to skyrocket. Bottom line: If you’re retiring soon, selling your current home could fetch a premium price and give you the extra funds needed to buy in your retirement destination.

Mortgage rates are rising.

This has two-fold implications: (1) Buyers might get priced out of the market if mortgage rates get too high. (2) You don’t want to pay more either. A word of caution: Trying to time the market to maximize sale price can backfire if you wait too long and lose buyers to decreased affordability.

The prevalence of remote working.

Remote working is affording buyers the opportunity to pick their home destinations without being strongly tied to their office. They’re also looking for amenities like bigger yards, waterfront properties, pools, playground areas, more land, etc. But even though space is what they’re after, some still don’t necessarily want to sacrifice urban amenities to get it. They’re looking for communities where they can walk to restaurants, shops, and more. What this means is that even though buyers are still looking in the more traditional areas, there are also more buyers looking in places that previously would have been too off the beaten path. So, regardless of where your home is, you just might have a top-dollar deal in your future.

Food for thought: Remote working can be an option for you, too. it’s entirely possible you can finish out your career in your retirement destination by utilizing work-from-home technology.

Renting could be the better option.

It’s common for those close to retiring to sell their homes early and rent for a couple years until they reach retirement. And while there’s evidence that the rental markets are starting to stabilize, prices are still riding the wave of increases brought about by demands for more square footage. But the flipside is that rentals come with less to worry about. Some retirees want to downsize or move to condos with all the amenities so they have less to take care of.

What to consider: The cost of renting may not be worth it if you can pay in cash for your new home outright, or if the cost of renting is close to, or higher than, your new home’s mortgage.

 

Audrey Somero, who wrote this article, is the marketing and communications coordinator at Homes.com, an online home sales marketer.

AFTER THE SALE, A CHECKLIST

The local housing market is exploding, causing baby boomers to seriously consider selling longtime homes well before they intended. Boomers (ages 57 to 75) make up 41 percent of those selling homes, according to the National Association of Realtors. They are hoping to cash in and pad their retirement funds as houses sell at lightning-quick speeds. They are also using this opportunity to “rightsize” and move into senior living communities or smaller condos.

To help with what can be a stressful and emotional process of getting ready to move after selling, Caring Transitions, a company specializing in senior relocation and transition services (its offices include one in Lakewood) has developed a checklist to, in the words of president Ray Fabik, “make the transition smoother.”

  • Don’t say things like, “Why did you hold on to this for so many years?” while sorting through belongings. Statements like this can cause stress.
  • Save photo albums for last. Too many memories can surface at once, which slow the process and trigger waves of emotions.
  • Set a timer and set it for one hour. Take a break once that hour is up.
  • Color-code objects with Post-It Notes: For instance, pink is pack, green is sell, and blue is give away.
  • Keep a schedule. If someone goes to bed at 10 p.m. every night, don’t try to keep packing late at night.
srmedia by — December 13, 2021 in Personal Finance/Consumers

Americans fear running out of money in retirement more than declining health. That worry is justified, as longevity is the greatest threat to a secure retirement, says Pamela Yellen, a financial-security expert.

“Over the last 40 years, there has been a dramatic shift away from company pension plans that promised workers a certain amount of money every month in retirement for as long as they lived,” Yellen said. “Instead, there’s been a shift toward do-it-yourself, cross-your-fingers, hope-and-pray retirement planning strategies like 401(k)s and IRAs.”

Because people don’t know how long they’ll live or how much they can safely withdraw each year, they run the risk of spending too much too quickly and outliving your savings, or spending too conservatively and not being able to fully enjoy your retirement years, Yellen contends. “Traditional retirement investing strategies also make it virtually impossible to ensure a major market crash doesn’t cut the value of your savings in half when you might not have time to recover from it,” she added.

The Center for Retirement Research at Boston College and other experts recommend having an annuity to ensure your money lasts as long as you do. “Including the right kind of annuity in your financial plan takes the guesswork out of taking income in retirement and can free you from the fear and worry that most people live with,” said Yellen, whose books include “Rescue Your Retirement: Five Wealth-Killing Traps of 401(k)s, IRAs and Roth Plans — and How to Avoid Them.”

srmedia by — November 16, 2021 in Personal Finance/Consumers

You’ve saved up a nice little nest egg to fund your retirement, but despite all of your hard work scrimping and saving, you’re worried you might need some extra income to fully enjoy your golden years. A reverse mortgage can be a great way to access additional funds by tapping into the equity you’ve built up in your home. A steady influx of extra cash each month can help you stay on top of everyday expenses and keep your standard of living up to your expectations.

Reverse mortgage rates may vary compared with other types of home loans. Whenever a reverse mortgage offer lands in your lap, take a moment to see how it stacks up against current rates before agreeing to anything.

If you’re confused about how reverse mortgages work, don’t worry, you’re not alone. Let’s clear the air about this often-misunderstood — and sometimes unfairly maligned — financial tool.

What is a reverse mortgage?

A reverse mortgage is a loan using the equity you’ve established in your home. As the name implies, a reverse mortgage flips the roles of the lender and the borrower. In this case, the lender pays money to the borrower based on that equity. Keep in mind that while the lender will make monthly payments to the borrower, you are still responsible for any applicable taxes, insurance premiums and association fees.

With a traditional mortgage, every payment builds equity in your home. Eventually, you’ll own a larger share of your house than the bank does, and one day, you’ll pay off that loan in full. In many cases, that equity isn’t available to homeowners until they sell their property or take out a home equity loan. With a reverse mortgage, however, you can extract some of that equity to pay for other needs, like groceries, clothing or medication, long after you’ve stopped earning a steady paycheck. If you’re worried about making ends meet during your retirement, and you have a lot of equity in your home, a reverse mortgage can help pay the bills and cover your living expenses.

This type of loan is also useful if you’re looking to downsize — say, from a single family home to a townhouse. After using the proceeds from the sale of your current home as a down payment, you can then take out a reverse mortgage on that equity to open up a line of credit. You don’t owe any mortgage payments on your new home, and you can access additional funds whenever you need them. Or simply leave that line of credit alone to accrue interest.

How do you qualify?

Reverse mortgages are highly specialized financial tools created with the express purpose to give retirees and seniors extra money to draw from in the event their life savings and supplemental income aren’t enough to cover their bills. There are several criteria you have to meet to qualify for this type of loan:

  • Be at least 62 years old.
  • Own 50 percent or more of your home’s equity, in most cases.
  • Home needs to be your primary residence and an FHA-approved residence.

How much money can you access?

The payout depends on your age, the market value of your home, how much equity you have built up, how up to date you are with other financial obligations like property taxes, the purpose of the loan and the type of reverse mortgage you’re using, and the current interest rates.

In general, borrowers who are older and have more equity in their home will receive more favorable loan conditions. Keep in mind, it’s unlikely your lender will offer a reverse mortgage loan that’s equivalent to the value of your home or the amount of equity you have in the property. Best-case scenario: You might get 75% of your home’s market value, but you should expect closer to 40 or 50 percent.

Know the different types of reverse mortgages.

Lenders usually offer three types–single-purpose, home equity conversion, and proprietary.

Single-purpose reverse mortgages are often the least expensive option available, but as the name suggests, you’re pretty limited as far as how you use your loan proceeds. Your lender will need to sign off on the purpose of the loan, whether that’s to pay outstanding property taxes, cover insurance premiums, or repair a leaky roof. Given all of that, it’s not surprising that single-purpose reverse mortgages generally cover much smaller dollar figures compared with other available options.

Home equity conversion mortgages (HECM), on the other hand, offer far more flexibility to the borrower. You can basically use the loan proceeds any way you like. There are a few caveats, though. For one, only lenders approved by the Federal Housing Administration (FHA) can offer these types of loans, so it’s possible your preferred financial institution won’t even support them. And as noted earlier, there’s a limit on the amount you can receive with any government-backed reverse mortgage. HECMs are also typically more expensive on the front end due to the extra costs borrowers have to cover. For instance, the FHA requires borrowers to pay a mortgage premium equivalent to 2 percent of your home’s market value. That’s a lot of money to put down, especially for cost-conscious retirees.

Proprietary reverse mortgages, also referred to as jumbo reverses, aren’t backed by the FHA. While that may seem like a negative, it also means they aren’t beholden to the maximum limits imposed on HECMs. As such, these types of reverse mortgages make the most sense for people who want to trade off of their high-value homes to get the largest payout possible.

Who owns the property?

People often worry about their status as a homeowner when using a reverse mortgage. We’re here to tell you that there’s really nothing to be concerned about. Your home’s title will stay in your name and can be passed on to your heirs just like any other piece of property.

In the meantime, you retain all the rights that come with your title, including the ability to make renovations and sell the property, if you so choose. Keep in mind, you’ll still be expected to stay current on financial obligations like paying your property taxes and homeowners insurance. If you fall behind on those payments, your lender has the option to demand the loan be paid back in full.

What time limits are on a reverse mortgage?

One of the most common concerns people have about reverse mortgages is how much time their family and loved ones have to sell the property after they’ve passed away. Reverse mortgages are beholden to the same estate guidelines as any other asset. The IRS requires the estate to file a final estate tax return within 9 months of the individual’s death.

Another question that frequently comes up is what happens if the borrower needs to leave the home for an extended period of time — say, to move into a nursing home or receive extensive treatment for a health condition. In those cases, the mortgage lender will wait a year before recommending that the property be sold to pay off the reverse mortgage loan.

What are the downsides?

Given all of the advantages discussed here, why do some people view reverse mortgages in a negative light? The truth is there are some downsides:

Origination fees, interest rates, extra fees, and loss of equity.

  • Origination fees. Usually a little higher than the closing fee on a conventional mortgage, due to upfront FHA mortgage insurance costs. That being said, all other closing costs, such as title fees and appraisal fees, are pretty comparable across both conventional and reverse mortgages.
  • Interest rates. Often higher than traditional mortgages, so you may wind up paying more in interest than if you had kept paying off your original mortgage.
  • Extra fees. Your mortgage insurance will cover any deficits when it comes time to settle your debt. That insurance isn’t free, though, and your lender will require you to foot the bill for your coverage
  • Loss of equity. Retirees need to consider how much equity they’re comfortable giving up to enjoy the benefits of a reverse mortgage.

 

Jeff Keleher wrote this article for Guaranteed Rate (rate.com), a mortgage lender.

srmedia by — October 27, 2021 in Personal Finance/Consumers

Economic inequality, especially among Blacks and Hispanics, ultimately leads to financial insecurity in retirement that is made worse by a shift from pensions to individual 401(k) savings accounts.

That’s the conclusion of a new report released Sept. 1 by the National Institute on Retirement Security (NIRS), a non-profit research organization based in Washington, D.C.

Even though the Gen X and Millennial generations are more diverse, whites continue to dominate when it comes to accumulating financial assets. Among those generations and Baby Boomers, Black and Hispanic Americans own small percentages of financial assets, according to NIRS.

“A retirement system built around the individual ownership of financial assets can’t provide retirement security for many if the ownership of financial assets is concentrated among the few,” said Tyler Bond, an NIRS researcher who wrote the report based on studies conducted in 2004, 2010, 2016, and 2019.

White Baby Boomers owned more than 90 percent of that generation’s financial assets, while Black or Hispanic Boomers owned 3 percent or less for the period studied. White Gen Xers owned roughly four-fifths of that generation’s financial assets in each of the four survey years included in the research. And white Millennials owned three-fourths of its generation’s financial assets in 2019.

“This stark inequality is even more problematic because the U.S. has largely shifted to a retirement system built around in 401(k) or IRA accounts rather than pensions. (Having) few financial assets during one’s working years translates into retirement insecurity later in life,” Bond said.

He also noted “an alarming reality for Blacks and Hispanics. Not only do they hold a small share of financial assets across generations, that share is falling in some cases. Absent serious policy changes, Blacks and Hispanics aren’t positioned to improve their economic and retirement outlook.”

Other report findings:

  • Inequality in the ownership of financial assets deepens over time. The top 5 percent of Baby Boomers by net worth owned a greater percentage of that generation’s financial assets in 2019 (58 percent) than in 2004 (52 percent).
  • Inequality in financial assets is consistent across generations. In 2019, the top 25 percent by net worth of Millennials, Generation X, and Baby Boomers owned three-quarters or more of their generations’ financial assets.
  • Mean and median financial assets were significantly higher for white households in 2019 than for Black or Hispanic households.

According to NIRS, potential solutions include strengthening and expanding Social Security, protecting pensions, increasing access to savings-based plans for low-income workers, and reforming retirement tax incentives.

The NIRS studied data from the Federal Reserve’s Survey of Consumer Finances. Household assets that were part of the data included liquid and quasi-liquid assets, certificates of deposit, directly held pooled investment funds, stocks, bonds, savings bonds, whole life insurance, and other managed assets. Phyiscal assets such as a home or a car weren’t included.

NIRS membership includes financial services firms, employee benefit plans, and trade associations. More information is available at www.nirsonline.org.

srmedia by — October 12, 2021 in Personal Finance/Consumers