How the Economic Crisis is Affecting Senior Homeowners

In Selling Your Home: How the Housing Crisis & Economy Factor In, I encouraged you to not let excuses stand in your way of moving, if the time is right for you to move. Recently, I had a conversation with a reporter from the Minneapolis Star and Tribune. The reporter asked me what kinds of trends I was seeing with seniors in the current economy. He was wondering if I was seeing seniors become “stuck” in their homes because of dwindling retirement accounts and homes that weren’t selling. He was looking for a scoop on a story and I’m afraid my answer wasn’t quite what he was looking for.

Why Seniors Aren’t Selling Their Homes

Seniors aren’t inventing any new excuses to not move (note: I said “excuses” and not “reasons”). The objections to moving usually fall into a few predictable categories—which are the same now as they were before this economic crisis occurred:

• Pride. My house is a badge of honor that symbolizes a lifetime of hard work and saving. It symbolizes success.
• Emotions. My house is where I raised my family and I have emotional ties to the memories created here.
• Identity. My house is in a community where I feel like I belong. My neighbors have been my social support for more than 40 years.
• Preparation. What will I ever do with all the stuff in the closets, basement, attic and garage? My late husband put up this wallpaper, and I just can’t take it down even if it keeps my house from selling. I can’t possibly go through all this stuff.
• Money. I don’t pay a mortgage and I don’t want to start having a monthly payment again. I’m afraid of running out of money.
• Fear. My house is a symbol of constancy, which comforts me. I’m afraid of the unknown.

The subtext in each of these objections is the same. What they’re really saying is, “I’m not ready to give it all up.” I’m not trying to make light of our current economic state. It’s very true that home prices have depreciated and seniors’ retirement accounts have lost value. What I am saying is this: if a senior says she wants to move, there’s a way to make it happen.

The reporter I talked with was looking for verification of a new trend. The new trends may be: increased fear of making a financial mistake, a mistaken myth that by waiting to move, the home will appreciate enough in value to make it worth waiting, and the belief that the home will never sell. With proper education, however, every one of these fears can be overcome. Seniors who are homeowners and own their home outright are no more stuck in their homes now than they have ever been.

Is New Reverse Mortgage Product the Solution?

In fact, as of January 1, 2009, there’s another new way to help seniors overcome the fear of running out of money. There is now a loan product that can be used to purchase a home. Seniors sixty-two or older who own their home outright (or have a very low balance that can be paid off) may use an FHA HECM (home equity conversion mortgage) to purchase a home and never have a monthly payment.

Imagine—a senior who owns a home worth $200,000 and wants to purchase a condominium for $250,000. After selling her home and paying closing costs, there would be as much as $186,000 left from the sale of the current home. Using an FHA HECM reverse mortgage, she would need $89,035 to purchase the new condominium.

The best part? No monthly mortgage payment unless the senior moves or dies. As long as taxes, insurance and association dues are kept current, you do not need to repay the loan. So you don’t have to worry about outliving the loan.

To read more about reverse mortgages, see my recent article, Reverse Mortgages: Pros and Cons. For more information and resources on FHA HECM reverse mortgages, call AARP toll-free at (800) 209-8085 or visit the US Department of Housing and Urban Development. Several online resources also exist; you can also get an estimate of the amount of funds you’ll need to purchase your new home using an FHA HECM reverse mortgage or find a list of HUD-approved reverse mortgage lenders.

Posted in Handling the Economic Crisis, Real Estate for Seniors, Reverse Mortgages, Senior Homeowners & The Economy