American seniors retain over 6 trillion dollars in their homes and more of them are beginning to use their equity to extend their retirement funds (Everyone is worried about out-living their savings) by using a reverse loan to leverage their portfolio’s longevity.
Another reason, might be to eliminate an existing mortgage payment and thus free up some extra money each month to be used for other expenses.
But maybe they decide to sell their home instead and take the remaining equity after Broker fees and expenses related to selling it and possibly rent instead of “own”.
What are the costs to the seller if they opt this route? I’m going to give a very simple example in this post, but obviously it would depend on the sales price, if they are paying off a mortgage and the Broker fee and other miscellaneous expenses related to the transaction.
- Sales Price: $450,000 @ 6% Broker Fees ( Might be less) = $27,000; Paying off existing loan $150,000 = $273,000 remaining equity.
- Now there are the “other” costs associated with the sale of a home.
- Escrow Fees and Title Insurance Policies Approx: $1800
- Repair and any “staging” fees; approx: $2,000 assuming any repairs are minor, etc.
- Moving expenses. Local rates can be $25.00 per “mover” and the average cost is $1000 to $2000. If the move is out of the state then it’s obviously more expensive and can be between $4000 to $8000. But again, it depends on the amount of items being packed and moved and the size of the home.
- Surprise expenses: There is no way of knowing what could happen in the process of selling one’s home. But it could be more money out of your pocket. Such as a Buyer wanting you to pay for some of their loan’s Closing Costs.
- Hassle and stress factor? It’s impossible to determine the “costs” of the amount of stress just trying to organize, pack, toss and find a new home to live in.
- And where? Going to rent or buy?
So if we deduct the estimated costs associated with our fictitious Seller and deduct it from the equity they have leftover after paying the Broker to List and sell their home, they would have somewhere in the “middle” of $260,000 and $245,000 left over after the entire, frustrating experience ends.
Now what? Rent until the money runs out or possibly consider buying another home, but this time use a Reverse mortgage to purchase it.
In the next post, let’s discuss why using a Reverse loan to purchase a property can be very beneficial method to qualify for a mortgage on a new residence.