Choosing the best option for housing in retirement
By Alan J. HeavensInquirer Real Estate Writer 5/5/06<br /><br />You’re sure you can afford to buy into one of those active-adult communities. If you do it now, you’ll have the equity from your present house to pay cash.<br /><br />But you have some big concerns. The stock market has been having more downs than ups, your 401(k) and pension fund aren’t performing the way you’d like, and you aren’t positive that Social Security will be around much longer.<br /><br />So what do you buy, how do you pay for it, and, most important, how do you keep it if things turn sour for you financially down the road?<br /><br />”These concerns have made a lot of buyers cautious,” said Gary G. Schaal, director of sales and marketing for Orleans Homebuilders Inc., which builds active-adult communities. “A few years ago, about 75 percent of our buyers were paying cash. Today, it is about 50 percent.”<br />The worries do not appear to be universal, though.<br /><br />Trish Egan, 52, a schoolteacher with 29 years in the classroom and a few more until retirement, sold her Glenmoore single on five acres about a year ago and bought into Hillview, a Chester County active-adult community. “I took out a small mortgage for tax purposes, but primarily used the equity from my house to buy,” she said.<br /><br />Egan does not think she will regret her decision 10 years from now.<br />”I’m divorced and have no children, other than my students,” she said. “My parents died at a young age, and I’m responsible only for the care of an elderly aunt. I’m not concerned.”<br />Anecdotal evidence suggests that there are some people who buy into active-adult communities only to discover that they cannot afford to live in them.<br /><br />”People should know all the costs involved before they buy into these communities,” said Tom Kelly, author of The New Reverse Mortgage Formula and coauthor, with John Tuccillo, an economist, of How a Second Home Can Be Your Best Investment.<br /><br />”They are moving to an environment that is generally more expensive than the one they are in, and what may be better and newer is not always the best choice for everyone,” Kelly said.<br />”We initially thought that active-adult would be a move-down situation, but it has been more of a lateral one,” said Lynda Barness, president of the Barness Organization of Warrington, Bucks County, which has built several active-adult communities.<br /><br />Thus far, there seems to be no evidence that strapped owners are abandoning active-adult communities en masse.<br /><br />When seeking mortgage financing, older buyers tend to limit themselves.<br /><br />”A lot of people, unfortunately, are wedded to the 30-year fixed mortgage when they buy into active-adult communities, and there are plenty of other options that make these houses more affordable,” said <a href=”http://www.fredglick.com”>Fred Glick, president of US Loans Mortgage L.L.C., of Philadelphia</a>.<br />”It’s the word adjustable that worries them,” Glick said. “They think the mortgage will adjust every minute of the day and go up to 30 percent.”<br /><br />If making payments becomes an issue, there are steps that can be taken. Home loans can be refinanced to meet changing needs. If one spouse gets sick and there are medical bills to be paid, there are ways to reduce mortgage payments.<br /><br />Property taxes can stretch the definition of affordability. But many municipalities and states are looking at ways to reduce the burden on older property owners over the long term, Barness said.<br /><br />For seniors who have not moved in years, the costs can be shocking. “What surprises them even more,” Kelly said, “is the amount of equity most of them have accumulated in their houses over 20 or 30 years.”<br /><br />His mother is sitting on that kind of equity, Kelly said, but does not want to leave friends and familiar surroundings.<br /><br />If you, too, prefer to stay in your current home, yet are concerned about finances, consider a reverse mortgage, which allows people 62 and older to convert home equity into cash without having to make monthly payments.<br /><br />Many people on fixed incomes do not qualify for conventional loans, but reverse mortgages have no income requirements. The size of a reverse mortgage depends on the applicant’s age, the type of mortgage being sought, the value of the home, and the interest rate.<br /><br />The loan matures when the borrower no longer occupies the house as a primary residence – for example, when the house is sold or if the owner moves or dies.<br /><br />There are a number of reverse-mortgage programs. One source of information is AARP’s “Home Made Money: A Consumer’s Guide to Reverse Mortgages.” A free copy is available by calling 1-800-209-8085.<br /><br />To many older ears, reverse mortgages sound too good to be true. But that is not so.<br />”A lot of people worry about not being able to leave anything to their children,” Kelly said. “When the market appreciates, the value of their house will increase, and they will start making the money they took out back.”<br /><br />Contact real estate writer Alan J. Heavens at 215-854-2472 or <a href=”mailto:email@example.com”>firstname.lastname@example.org</a>. Read his recent work at <a href=”http://go.philly.com/alheavens”>http://go.philly.com/alheavens</a>.