Buying a new residence: how to do it in retirement

[Brett_Cameron]

Guslevy:
Good question raised by this thread. I suspected that it would be different trying to refi with reduced income cash flow. Thanks for asking!

 

[pb4uski]

I think the best alternative would be for her to stay in her home until it is under contract and any critical contingencies have been cleared and then buy another home and make the purchase of the new home contingent on the closing of the sale of her old home. This is the most common way of doing it. She wouldn't have to move twice or do any financing or anything like that.

Alternatively, she might be able to get a small HELOC on the old home and use the proceeds along with her taxable investments to buy the new home and then pay off the HELOC and replenish the taxable investments with the proceeds from the sale of the old home.

If the tax implications of liquidating the taxable investments is an issue, she may be able to take out a collateral loan on the taxable investments instead of selling them and then pay off the collateral loan from the proceeds from the sale of the old house.

Finally, she could sell the old home and move into some temporary digs and then move into her new home. My sister is doing this right now as their old home sold much quicker than the thought it would and their new home isn't built yet. Most of their belongings are going into storage, and they are just taking essentials with them to the temporary digs to minimize the inconvenience of two moves.

 

[Buckeye]

Don't buy a new home until the old mortgage is paid off. A contract for sale can always fall through up until the moment the funds are transferred. Play a game of pretend picturing your aunt with 2 mortgages for a year or maybe 2. Is that acceptable? Or picture her selling the home for half the current selling price she has in her head. You can almost always make a home sell quickly if you price it right. Is that acceptable? Or picture the home getting broken into and being stripped of it's appliances and wiring and copper tubing.

Once she moves out of the house, she is going to have an issue with her homeowners insurance because the house is vacant. If something catastrophic happens to the house several months after she leaves and she hasn't notified her insurance company the house is vacant, her claim may be denied. Her insurance company may even cancel her policy when she tells them the house will be vacant for an extended period of time.

How old is she? Does she really need to own her own home? Can she afford to own her own home even if there is no mortgage (large repairs, proper ongoing maintenance)?

While doing AARP taxes this year and talking to seniors, I learned many are saddled with homes they no longer want (too much work to maintain) or can no longer afford. It's sad.

 

[samclem]

Thanks to all for the ideas and suggestions. I gathered a little more info and I think we have a plan:
- I called the Realtor who is listing the house she's interested in buying. I figured he's be motivated to find an answer, but he had no ideas beyond what we discussed here.
- I called USAA. We recently re-fi'ed our primary residence with them so they had all our financial info at their fingertips. It turns out DW and I could buy the place for MIL, or co-sign a loan with her (in which case the qualifying would be done on the average of FICA score and hers). Hands down this will be the simplest and cheapest way to go.

I spoke with my MIL on the phone, we discussed the advantages of her doing things in order: staying in her home until it's sold, then move to temporary housing (probably with us) while she takes her time to look for a house. That obviously negates the need for financing and also allows her to focus on one thing at a time. I think she's leaning toward this option.

What about a military-style move with one big container for the household goods, temporarily stored until she finds the new home, and a smaller container for "unaccompanied baggage"? She could live for a month or two in a furnished or unfurnished efficiency, or in a residential hotel.

I think this is what we'll do. I think she'd prefer a crate-up (one of those CONEX-like deals) rather than have cardboard boxes and furniture in a warehouse.

Look up asset depletion mortgage.

USAA ran the numbers, but I think their criteria must be very conservative as she wouldn't qualify based on her assets.

One option that may work in your MIL's case may be to put contingencies on either or both sides of the transactions.

Thanks for the idea, but I think she'll be able to keep things simpler than that. She's not on a particular time schedule, so she can sell and buy without contingencies, which should move things along faster and (hopefully) result in better prices for her on each transaction.

How old is she? Does she really need to own her own home? Can she afford to own her own home even if there is no mortgage (large repairs, proper ongoing maintenance)?

Those are concerns, but she wants a house. She's a practical lady, has raised 5 kids, and she and her hubby saved enough money so they could live as they choose in retirement. He's gone now, and I think she'll enjoy having a small yard to fuss over for the next decade.

Finally, she could sell the old home and move into some temporary digs and then move into her new home. My sister is doing this right now as their old home sold much quicker than the thought it would and their new home isn't built yet. Most of their belongings are going into storage, and they are just taking essentials with them to the temporary digs to minimize the inconvenience of two moves.

I think this is the way we'll do it.

Oh, I learned something else: When I called USAA they shunted me over to some kind of USAA/Wells Fargo joint venture called "Military Family Home Loans". First glimpse: This looks like bad news. I had to repeat information a few times, spent 10 minutes on hold without any indication of how long I'd be waiting, and finally gave up. This was definitely not the great USAA customer service I'm used to. If I do end up going for a USAA mortgage I will do what I can to get a loan serviced by USAA and avoid this USAA/Wells Fargo lashup. If that's possible.

 

[rayvt]

I wonder how the IRS learns that a person has offered their IRA as collateral?
I was wondering the same thing. There must be some kind of reporting requirement.

The IRS doesn't need to do anything. No bank will do this, simply because it's forbidden.

 

[Nords]

I spoke with my MIL on the phone, we discussed the advantages of her doing things in order: staying in her home until it's sold, then move to temporary housing (probably with us) while she takes her time to look for a house. That obviously negates the need for financing and also allows her to focus on one thing at a time. I think she's leaning toward this option.

So you'll be living with your spouse and your mother in the same house for an extended period of time?

Good luck with that.

I think this is what we'll do. I think she'd prefer a crate-up (one of those CONEX-like deals) rather than have cardboard boxes and furniture in a warehouse.

Neighbors just landed a POD in their driveway for their move to San Francisco. I guess you can now have one on your property for a few weeks, load it at your leisure, have it stored and eventually moved to your new location, and unload it at your leisure.

Oh, I learned something else: When I called USAA they shunted me over to some kind of USAA/Wells Fargo joint venture called "Military Family Home Loans". First glimpse: This looks like bad news. I had to repeat information a few times, spent 10 minutes on hold without any indication of how long I'd be waiting, and finally gave up. This was definitely not the great USAA customer service I'm used to. If I do end up going for a USAA mortgage I will do what I can to get a loan serviced by USAA and avoid this USAA/Wells Fargo lashup. If that's possible.

USAA's 22,000 employees don't necessarily keep good track of each other, but they've learned to respond to bad member experiences. If you share this with them then they'll either make it better for you or terminate the relationship before they get a hailstorm of member complaints.

I don't have any insider contacts for complaints-- you just call up or e-mail the home insurance people.

I thought USAA's "Home Circle" service was all funded with their own money, but I've never used USAA for home insurance. Maybe you'll get better service from Armed Forces Insurance. They've always been a fraction of USAA's premiums but I've never had to make a major claim.