Pulling money out of paid off house

lakerunner

Recycles dryer sheets
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Our good friends and neighbors are thinking of selling their house and moving to lower cost, more senior friends area. One of the driving factors seems to be the amount of money that have tied up in the house. They have no children, so they are not worried about leaving an inheritance. This got me thinking about the best way to pull money out of a house. HAs anyone done a reverse mortgage or taken out a mortgage in their 70s?


Edited to clarify: I am looking for options where they can stay in this house and not move. They are not concerned about owing money on the property when they pass.
 
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Reverse mortgage only allows you to use a very small percentage of the value of the home and the interest rates are very high, plus exorbitant processing fees etc. HELOC is a better way to borrow from the house but has income qualifier. I would sell and move to a cheaper home.
 
Seems to be two questions. One how to get money out of their house to buy another. And two being how to get cash for expenses. HELOC is a good way for buying a new house. Reverse mortgage is for monthly income. Reverse mortgage can have lot of fees and cost.
 
Seems to be two questions. One how to get money out of their house to buy another. And two being how to get cash for expenses. HELOC is a good way for buying a new house. Reverse mortgage is for monthly income. Reverse mortgage can have lot of fees and cost.
Sorry. I have edited the original question. Basically, Im looking for options that let them stay in this house.
 
WADR do you really want to assume the role of their financial advisor and risk being blamed if something goes off the rails in the future? It is a good-hearted thing, but as they say: "No good deed goes unpunished."
 
Sorry. I have edited the original question. Basically, Im looking for options that let them stay in this house.
Why do you think they want to stay in their house? Sounds to me like they are ready to move on...

You can always take on a new mortgage with a cash out option.... my BIL did that twice to have a 'better' lifestyle... he passed and now my sister is paying for a mortgage and she is 83... and has lived there for over 36 years... should have been paid off...
 
Why do you think they want to stay in their house? Sounds to me like they are ready to move on...

You can always take on a new mortgage with a cash out option.... my BIL did that twice to have a 'better' lifestyle... he passed and now my sister is paying for a mortgage and she is 83... and has lived there for over 36 years... should have been paid off...
Im not sure that they should stay. I just want them to be aware of their options. They built their house close to 30 years ago. Their best friends live across the street. (The two husbands have known each other for more than 40 years and do everything together.).
 
WADR do you really want to assume the role of their financial advisor and risk being blamed if something goes off the rails in the future? It is a good-hearted thing, but as they say: "No good deed goes unpunished."
I agree. I tend to not get involved. If I found something I thought they could consider, I would bring it up one evening with the small group we have over a beer as something like: Have you ever considered xxx? I would also say my free advice was worth everything they are paying for it.
 
Our good friends and neighbors are thinking of selling their house and moving to lower cost, more senior friends area. One of the driving factors seems to be the amount of money that have tied up in the house. They have no children, so they are not worried about leaving an inheritance. This got me thinking about the best way to pull money out of a house. HAs anyone done a reverse mortgage or taken out a mortgage in their 70s?


Edited to clarify: I am looking for options where they can stay in this house and not move. They are not concerned about owing money on the property when they pass.
A reverse mortgage might be a good option for them if they want to stay in their home while accessing some of the equity.
 
Maybe they are cash poor and looking for a way to increase their cash flow? Selling, downsizing, paying cash for a smaller home and hopefully having some money left over might be what they need.
I would think that they have considered other options, but it never huts to suggest alternatives, if they ask.
 
Sorry. I have edited the original question. Basically, Im looking for options that let them stay in this house.
Of course, the reverse mortgage does allow them to stay in the house, but there are many issues as pointed out by others.

Not what they want to hear, but if I were advising them, I'd advise that they rethink their option to downsize. If they end up living a few blocks away from friends, then that's unfortunate, but financial security has its own costs.

I'd consider any other cash-out as less desirable under the circumstances. It would be different if they just had a current/limited cash flow problem. But apparently, they aren't going to have any other infusion of cash or income. It may be better to face the fact they are spending too much to stay in that house.

Good luck on this. You could end up being the "bad guy" and that would be unfortunate.
 
Their best bet is to get a cash-out mortgage or if they currently have a mortgage do a cash-out refinancing of their mortgage. The second best way is probably a home equity line of credit.

Both would generate a lump sum in exchange for their home equity but would require resuming monthly mortgage payments.
 
Not sure where you live but another thing to consider is property taxes...

My sister had some of her taxes frozen when her DH turned 65... if she sold the house to cash out and downsize she would be buying a new house without 'frozen' taxes... now, they would freeze again at what the new house was appraised...

Then again, a smaller (newer) house might be much more energy efficient and be much less cost on utilities...

The other thing I would mention is how long do they think they can stay there? If in their mid to late 70s that might only be a few years before needed to move into a 'home'... the costs of selling and buying and selling again might be a lot higher than they think... maybe just one sell is better...
 
I posted in another thread that our friends are looking at running out of money to live on and will sell their home in about 7 years' time so that they can get money out of it to live on and buy a cheaper home. They certainly live beyond their means and are very showy people.
 
Our good friends and neighbors are thinking of selling their house and moving to lower cost, more senior friends area. One of the driving factors seems to be the amount of money that have tied up in the house. They have no children, so they are not worried about leaving an inheritance. This got me thinking about the best way to pull money out of a house. HAs anyone done a reverse mortgage or taken out a mortgage in their 70s?


Edited to clarify: I am looking for options where they can stay in this house and not move. They are not concerned about owing money on the property when they pass.
You say one of the driving factors is they want the equity in the house. Does that mean they would stay if they had the equity, but now had to pay a mortgage or rent? Do they have sufficient income to qualify for a mortgage or HELOC? Clearly a mortgage gets them the money, but at what cost?

Here's a thought. Have they considered selling but with a life estate? It's typically done where Mom and Dad want the kids to have the house when they die, but want to live in the house until they die. You mentioned no kids, but perhaps there are other relatives who might buy the house with a provision that they stay their until they die.

My theory works best with whomever they intend to inherit the house when they are gone. If they have nobody, give them my name. I'll make that deal. :greetings10:
 
Reverse mortgage only allows you to use a very small percentage of the value of the home and the interest rates are very high, plus exorbitant processing fees etc. HELOC is a better way to borrow from the house but has income qualifier. I would sell and move to a cheaper home.
What is considered a very small amount? I thought it could be 50% or more of the equity depending on age,
Edit: I read the info you posted to another thread but I’m wondering if this scenario is apples to apples. I do agree RM is a last resort due to all the cons listed.
 
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What is considered a very small amount? I thought it could be 50% or more of the equity depending on age,
About 30% the last I checked for our friends who will be in their 70s. If you have an existing small mortgage, the percentage is even lower.
 
As others have kind of mentioned, it is a little confusing.

Is their financial situation such that they need the money that is locked up in the house? Or they simply don't like having a large portion of their net worth illiquid?

If it's the case that they need the money, I would say to sell it, take their $250k/$500k capital gains exclusion, and then downsize, or maybe rent. No matter what, they will have unlocked all the equity, freed themselves of the ongoing costs/taxes/etc.

If they don't need the money, then I'm not understanding what the concern is about having the money locked up in equity. If there is no concern about leaving an inheritance, then who cares if it's locked up in the house? As you mention, they are happy there.

No matter what approach they use to take money out of the house, there are going to be initial fees today, and they are going to have to be paying interest, and/or more fees for getting their money out. This is the primary reason I say to either just leave the equity in the home if they don't "need" the money, or to simply sell and move on.
 
I used a HELOC to pull enough money out to buy our next home. It was paid off when I sold the old house.

Seems to be two questions. One how to get money out of their house to buy another. And two being how to get cash for expenses. HELOC is a good way for buying a new house. Reverse mortgage is for monthly income. Reverse mortgage can have lot of fees and cost.
I was researching this exact thing this morning. The DW and I are "once again" thinking of moving away from the open county :( to a mid size city :ermm:as we are getting older and could benefit from being closer to "things" and downsizing too. We "think" we want a nice new (or nearly new) 1500 to 2000sq ft home. Probably looking at an over 55 community and something in the ~300k range. Our current home/property is easily worth more than that. I'm wondering how common it is to find a realtor that will sell us our new home "contingent" on them selling our current home/property. For them they would be making money on both properties.

I could buy the new home outright, (and I might do that) and just list the current home and "wait" for a sale but would prefer not to for a number of reasons.
 
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I'm wondering how common it is to find a realtor that will sell us our new home "contingent" on them selling our current home/property. For them they would be making money on both properties.

I don't know how common it is, but we did exactly this 23 years ago when we bought our current home.

We were passing by the home on our drive back to ours, pulled over and called the agent. There was an open house scheduled the next day. It was a hot market at the time, and we told the agent, come now and show it to us. Within an hour we made a full listing price offer and told the agent exactly what you are thinking - since we had to sell our then current townhome, told the agent that we'd give her the listing. Next day at the open house, the showing agent was telling everyone they weren't taking offers, it was already sold. A couple weeks later our townhouse sold. Everything worked out fine, agent made money on both listings.
 
My sister has a reverse mortgage. She used some of the money to upgrade some things in her house and dial in the "age in place" factors. (Walk in shower, nicer kitchen) And she gets an annual chunk each year that she earmarks towards travel. This works for her. She has no children and her house is worth a lot because of the inflated housing market in San Diego. Wouldn't have been my choice due to the interest rates but it totally works for her.
 
... I'm wondering how common it is to find a realtor that will sell us our new home "contingent" on them selling our current home/property. For them they would be making money on both properties. ...
Not sure I understand the issue. A realtor doesn't sell you your new home. He/she is just an employee if you choose to hire a buyer's agent. If you don't, then you deal with the listing agent, who is an employee of the seller. Neither is necessarily contingent on anything. This agent stuff is in turmoil right now because of the recent court settlement, but it will sort itself out. In the mean time IMO you can count on human nature. If you're buying a new home, all of the realtors involved will be focused on getting as much money out of it as possible. The possible opportunity to list your current house is just frosting on the cake -- more money to chase. At bottom your goal should be to minimize the money you and your new home's seller have to pay out. The realtors will worry about themselves.
 
I was researching this exact thing this morning. The DW and I are "once again" thinking of moving away from the open county :( to a mid size city :ermm:as we are getting older and could benefit from being closer to "things" and downsizing too. We "think" we want a nice new (or nearly new) 1500 to 2000sq ft home. Probably looking at an over 55 community and something in the ~300k range. Our current home/property is easily worth more than that. I'm wondering how common it is to find a realtor that will sell us our new home "contingent" on them selling our current home/property. For them they would be making money on both properties.

I could buy the new home outright, (and I might do that) and just list the current home and "wait" for a sale but would prefer not to for a number of reasons.
If you don't want to be "stuck" with 2 homes, I would recommend that you sell your home first at the price that you want. Buying a home first before selling puts pressure on getting your home sold, which may mean at a lower price.

Before we retired, I had always owned 2 or more homes, i.e. no qualms about buying another home first before selling an existing home, because my cash flow was pretty good. After we retired, we decided to "swap" houses, i.e. sell our home and buy another home, at end of 2020 and decided to sell our home first. We got the price that we wanted and the buyers wanted to close in 3 months. Unfortunately my husband did not want to wait for the perfect home and pushed us to put money down on a to-be-built home. He didn't want to be "homeless" in the meantime. We paid alot for a premium lot and a ton of upgrades, and all was forfeited when we found the perfect home. We managed to have "concurrent" closing so that the money from the sale of our home would be applied to the new home. It worked out for us.
 
Reverse mortgage only allows you to use a very small percentage of the value of the home and the interest rates are very high, plus exorbitant processing fees etc. HELOC is a better way to borrow from the house but has income qualifier. I would sell and move to a cheaper home.
Using assets in retirement accts instead of income is becoming more prevalent
 
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