In this edition of "Bank of Dad" our columnist tackles the best season to sell your home and the pros and cons of reverse mortgages.
I just got a job in another state and have to put our home on the market, though it’ll take some time to get it ready. I know early spring is considered the best to list a house. Have I missed the boat in terms of getting the best price? — Tom Plano, TX
You’re right that the first hint of warm weather tends to bring out a throng of buyers, most of who didn’t have much to choose from during the winter months. But I wouldn’t panic, either.
Zillow actually breaks down the effect of listing dates on sale prices on a city by city basis. And in almost every market, including the Dallas area, the ideal time to list a home is between May 1 and May 15 (in some bigger cities like New York and Chicago, it’s actually late April).
They’re not the only ones to come to that conclusion, either. In its analysis of nearly 15 million home sales, ATTOM Data Solutions found that May transactions reaped the biggest seller premium over the estimated market value, 5.9 percent, followed closely by June with a 5.8 percent premium. As the summer wears on, there just aren’t as many buyers around to bid against each other and drive up prices.
It usually takes a couple months to get your home in listing shape. But as long as you get the ball rolling now, you should be okay. The key is to avoid putting out the “For Sale” sign in mid- to late-summer, when demand generally tapers off a bit.
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While it’s useful to look at big data sets like this, keep in mind that there may be local factors this year that will skew results in your area. Maybe big employers near you go on a hiring blitz, bringing in a flood of new home-seekers over the summer, or a school re-districting decision makes a particular sub-division more in demand. It certainly doesn’t hurt to keep your pulse on those local factors, too.
My in-laws are retired and are considering a reverse mortgage to make ends meet. I’ve heard conflicting things about these loans. What’s your take? — J.B., Cape Girardeau , MO
A “reverse mortgage” is the more common term applied to the FHA’s Home Equity Conversion Mortgage, or HECM. For a long time, it’s been the dirtiest four-letter word in wealth management.
HECMs give older adults the opportunity to tap the equity in their home without having to pay down the loan until they sell it or pass away. To get one, you need be 62 or older, use the property as your primary residence and have substantial equity built up. And you have to generate enough income to keep cover things like property taxes and homeowner’s insurance.
The problem is that their upfront costs take a heavy toll on borrowers. On a $300,000 home, borrowers can expect to pay loan origination fees of up to $5,000 (though it may be less), mortgage insurance premiums of $6,000 and closing costs of anywhere from $2,000 to $3,000. Add to that a few ongoing expenses — mortgage insurance premiums that total 0.5 percent of the outstanding balance annually and a servicing fee that’s capped at $35 a month — and they take a big chunk out of your loan.
But a number of experts, including noted researcher and author Wade Pfau, tend to see them favorably – at least when they’re used strategically. In most cases, they recommend setting up the loan as a line of credit early in retirement rather than as a lump sum, which means you’re only paying interest on the amount you borrow (unfortunately, you’ll still pay upfront costs). Over time, your available credit grows, regardless of what happens to the value of your home.
One advantage of HECMs is that borrowers can use them to pay off their existing home loan, giving them greater financial flexibility. You can make regular payments to drive down your reverse mortgage balance, but you don’t have to. So if money’s tight, you don’t have to worry about the bank knocking on your door if you skip a few months.
There are a number of others reasons why your in-laws might want to access the wealth in their home, too. For example, they can:
- Draw on their line of credit when the market turns south, rather than pulling money out of investment accounts when they’re at a low.
- Use the funds to delay Social Security benefits, ensuring that they get bigger checks from the government later in retirement.
- Use the credit line to pay for in-home care directly or to keep their existing long-term care policy from lapsing.
For a long time now, retiree nest eggs have been hammered by paltry interest rates. But with reverse mortgages, low rates are actually a virtue – they allow homeowners to borrow more against their home. As long as you know what the costs are, they can make sense for certain people.
If your in-laws decide it’s the right move, encourage them to shop around. It’s not as easy to compare quotes as it is with other mortgage products, so they really need to contact multiple originators to make sure they’re getting the best deal. The more research they do – and the more questions they ask – the better the outcome will be.
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