Looking to your house for cash?
A family home or other personal residence is a major source of wealth for many seniors. But those who are, as the saying goes, house rich and cash poor may wonder how they can tap some of that wealth, aka home equity, so they can use it for other financial needs. Read on for four ways to get cash from a house.
The most straightforward way to turn a house into cash is to sell it.
Younger seniors, say, 50 to 70 years old, typically sell their home so they can move closer to their children and grandchildren, according to Lane Tharp, a seniors real estate specialist at Coldwell Banker Residential Brokerage in Dunwoody, Ga. Older seniors, say, 70-plus years old, are more likely to sell due to health issues, especially a serious illness or injury that makes the home burdensome.
The benefits include:
- Cash to spend or reinvest.
- Greater freedom to travel.
- Relief from repairs and maintenance.
- Potentially lower utility costs.
The downside may be the prospect of cleaning and packing a residence that’s been a home for decades. Tharp says a senior move manager can coordinate and take over some or all of the work.
“Once they understand they don’t have to do it all by themselves, and they’ve determined where they want to go … then they get excited about it,” she says.
Another option is to move out of the house and rent it to tenants. Younger seniors sometimes rent out their home because they want to move, but aren’t willing to sell the property at what they perceive to be a depressed market value. Older seniors more often choose the rental option as a short-term transition when they move to a long-term care facility.
“Frequently, they have, in their mind, the potential of moving back to their home if they don’t like it,” Tharp says. “But more often than not, they get settled in, meet people and get involved in the activities and they like it and go ahead and sell the house.”
Being a landlord entails some risks and headaches, but Tharp says a property management firm or the rental division of a realty brokerage company can help find tenants, collect rent and handle repairs and maintenance.
Seniors who have equity, income and a strong credit score can borrow against their home with a home equity loan or home equity line of credit, or HELOC. A loan is for a specific amount over a stated term, while a HELOC has more flexibility. In either case, the borrower must make payments on the loan or line of credit.
Qualifying for a home equity loan or HELOC doesn’t require a paycheck or employment-related income, according to Gary Korotzer, senior vice president of marketing at Wells Fargo in San Francisco. Instead, seniors can use their investment income, rents from rental properties or other sources to qualify.
“It’s going to be situational,” Korotzer says, “depending on how much they (want to borrow) and their ability to repay. Many people have multiple sources of income.”
A Home Equity Conversion Mortgage, or HECM, or a reverse mortgage, allows homeowners who are at least 62 years old to borrow against their equity without selling their home or making payments.
This option may be a good choice for seniors who can afford to maintain their home and pay the costs of homeownership, but want to obtain a lump sum, line of credit, fixed monthly payments or a combination of those.
It’s important to understand that an HECM is still a mortgage, says Barbara Stucki, vice president of home equity initiatives at the National Council on Aging in Washington, D.C.
“They are deferring the payments, and the payments are still accumulating over time, and they are paying interest on the deferred payments,” she says.
An HECM also entails upfront closing costs and mortgage insurance.
Once borrowed, the equity is no longer available for future financial needs or to be passed on to beneficiaries. Instead, the house usually is sold to repay the loan, which comes due when the senior permanently moves out, sells the home or dies.