Selling a house to move into assisted living in New Jersey
If you or a love one has no intention of returning back home, selling a house to move into assisted living in New Jersey can make financial sense and is the most common solution when making the transition from a home to an assisted living.
There are numerous of benefits to selling a home. The proceeds can be used to cover the moving and move-in costs for assisted living. Paying off any outstanding mortgage will reduce monthly expenses as will the lack of home maintenance costs. Once the home is sold, you nor your family members no longer must manage the cost of owning or renting a home.
The large sum of money generated by a home sale has both positive and negative consequences. Obviously, the money can be put in the bank and used to pay for assisted living or nursing home care for many years. However, since life expediencies are unpredictable, this money may run out eventually. One option to prevent running out of money is to buy a lifetime annuity with the proceeds of a home sale. A lifetime annuity guarantees a monthly income for one or both spouses for the rest of their lives regardless of how long they live.
One potential negative consequence of selling the home is the impact on Medicaid eligibility. If one is considering Medicaid as a source of funding for nursing home care in the long term, they need to carefully consider the implications before selling their home. A home, when occupied by the homeowners, is considered an exempt asset by Medicaid. However, if the home is sold, the resulting sum of cash is not considered exempt by Medicaid. Therefore, the individual will be required to spend all the proceeds on their care costs or “spend down” in another manner that does not violate Medicaid’s look back rule, which if violated, results in a period of Medicaid ineligibility. Once one’s total assets have been spent down to Medicaid’s asset limit, which is $2,000, they can become eligible for Medicaid. Seniors and couples in this situation should strongly consider consulting with a Medicaid planning professional.
Another consideration when selling the home is how to pay for care in the time it takes to sell a home. According to Zillow, as of 2020, it takes on average 55-70 days to sell a home. While obviously this depends on the local real estate market if a home has not been modernized can take even longer than average to sell. Most homes owned by seniors have not been modernized.
You can apply for Bridge Loan
Obtaining a bridge loan from a local bank may be an option if you need funds for medical care and your home has equity. With a bridge loan from a bank, you have cash in hand while waiting for your house to sell. This cash can be used to either update the home to sell better or to pay for assisted medical care. However, obtaining a bridge loan may still take several weeks to receive the funds.
Selling to a cash home buyer in New Jersey is another option for selling a home. If you are looking to sell quickly and eliminate the traditional sales process, you may consider a cash buyer like Garden State Cash Homes. If your home needs repair or has deferred maintenance, we buy houses as is fast and for cash. We will pay the closing cost and you can pick your closing date. You may not sell for the same price as if your home were fixed up and sold through a Realtor. However, you may end up netting about the same amount, as you typically will not have to pay commissions or other buyer incentives. Call us today 732-372-0940
Renting the Home
Renting a home to pay for care instead of selling it only makes sense if the house is free and clear from a mortgage, liens, or payments are exceptionally low.
Renting one’s home and using the monthly income to help offset the cost of residential care is a good option. It can provide cash on an ongoing basis, but only if many other conditions are met. If you do have a mortgage it only makes sense, if the rent money will have to cover the mortgage and any home maintenance, as well as a significant portion of the cost of their long-term care. It is also challenging for elderly individuals in residential care to play the role of landlord. Usually there needs to be another family member willing to take on this responsibility or there is another added expense of a property management company. Another consideration is whether the homeowner has enough savings to withstand the interrupted cash flow of an unexpected tenant vacancy.
Renting a home may be an option for those considering Medicaid, but it can be a tricky situation.
Renting a home is not always a good option for those who are considering Medicaid as a source of financial assistance for long-term care. This is because the rules allowing a Medicaid recipient to rent out their home varies based on the state in which one lives. As an example, in some states, part of the home’s equity value may count toward Medicaid’s asset limit and / or rental payments may count towards Medicaid’s income limit. This means renting out the house could potentially cause one to be ineligible for Medicaid. It is best to seek the counsel of a professional Medicaid planner before choosing this option.
Reverse mortgages have become very popular in recent years. With reverse mortgage, you can receive a lump sum or monthly payments for as long as you live in the home. In it’s simplest form, it’s a loan against the equity in your home, but there’s no payments until you sell or move out of your home.
If you are receiving in home care, a reverse mortgage can provide monthly income. However, should you need to move to assisted living, your reverse mortgage will end and you will be required to sell the home or the bank will foreclose.
Home Equity Line of Credit or Home Equity Loan
Often abbreviated as HELOCs, home equity lines of credit give homeowners the option of borrowing to pay for care on an as needed basis. A bank will approve the homeowner for a specific amount of money for a certain period of time. The homeowner can borrow however much they require whenever they require it. And the monthly payments are dependent on how much they have borrowed.
There are certain advantages and disadvantages to HELOCs, especially when considered in comparison to a reverse mortgage.
The disadvantages include the fact that the homeowner must continue to make monthly payments. This is not the case with reverse mortgages. If one fails to make their payments, the home can be foreclosed. HELOCs do not have the same level of consumer protection as do reverse mortgages. Finally, as monthly payments are required, the borrower’s credit score plays an important part in the approval process. With reverse mortgages, credit scores are considered significantly less important.
The major advantages of a HELOC are:
1) The fees are generally lower for a short-term loan than they would be for a reverse mortgage.
2) There is no requirement that the homeowner remain living in their home.
This is, of course, a very important consideration for persons who may need to move to assisted living or nursing homes at some point in the future.
One must apply these advantages and disadvantages to their specific situation to determine if a home equity line of credit is a good source of funding to pay for elder care. Generally speaking:
Single individuals and married couples in good health should probably avoid a HELOC as a means of paying for care as their need for care is undetermined at present.
Individuals with immediate care needs or couples in which both spouses require care are candidates for HELOCs because there is no requirement that they remain living at home. Should it be necessary for them to move into residential care, they can do so without concern that their HELOC will become due. A line of credit also gives them the flexibility to accommodate sudden increases in their monthly expenses due to the added cost of residential care. The line of credit also gives the flexibility to return to living at home should one’s health allow for it or provide a source of funding for care while determining if the home should be sold.
For couples in which only one spouse requires care, both HELOCs and reverse mortgages can be good options. One needs to consider the extent and duration of the care required. However, reverse mortgages are not available to couples in which one spouse is under 62 years of age, while this does not hold true for HELOCs.
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