Selling a home is one of the most popular options for aging adults looking to finance senior living — even more so than turning a home into a rental property, which requires ongoing maintenance and may not produce enough income to cover the monthly cost of senior living. Freeing a large sum from the sale of a house can help fund any costs related to downsizing, the move to the new community, and the cost of the community itself. But, there’s a lot to consider when making such a big change, including how home sale proceeds may exclude your parents from some entitlement programs. Our guide and checklists will help you make sure you don’t miss anything important.
Selling your parents’ home: Respect the emotional component
It can be complex and emotional to have to move from familiar place full of memories to something unknown. Despite the potential for intense feelings, selling a parent’s/relative's home to pay for care can easily be a positive and smooth experience. Whether you’re selling a house to pay for palliative care, assisted living, memory care, or a nursing home, the following will cover what you can expect financially and walk you through the crucial steps to take.
When to sell your parents’ home to pay for care
Whether you’re a senior planning a move to senior living or their family member, the first considerations are usually planning and timing. A lot of sellers want to know whether they should they sell the house before or after a move to senior living. To answer this question you need to consider homeowner's health, why are they moving? It’s important to look at the whole picture. Questions like these can help establish an appropriate plan. It is recommended that seniors and their families consider key factors such as financial needs, stress, and timing.
Selling house to move into assisted living: Average costs of long term care.
If you or a family member are in need of assisted living care, you know that the costs can exceed several thousand dollars a month. If you are considering moving to an assisted living community, you may be considering using your home’s equity. Or you may be a family member thinking of selling your elderly relative’s home to pay for their medical expenses.
If so, here are several things to consider when thinking about paying for long term care with the home’s equity.
As of 2019 in a study by Genworth Life Insurance Company, in home assisted care nationally runs $4,385 per month, while in the Sacramento region the costs are 25% more at $5,434 for Homemaker services. Double that if you need an in home health aide.
In a 2016 study done by the U.S. Government’s department of Health and Human Services states that 52% of adults reaching the age of 65 today, will need long-term health services at an average cost of $138,000. Fifty percent of these costs will be paid for by the families themselves, the rest by government programs.
Options for using your home’s equity to pay for assisted living
There are four ways you can tap your home’s equity to pay for health care. Let’s consider each of these ways you can tap into your home’s equity to pay for health care costs.
Home Equity Line of Credit
If you have equity in your home, you may be able to apply for a Home Equity Line of Credit also called a HELOC. A HELOC is a bank loan against the equity in your home. Typically, these are five or 10 year interest only loans that convert to traditional loans at the end of their term. In other words, if you borrow $100,000, you will only pay interest on the money for the first five or 10 years. Afterwards, you will have to begin paying back the loan.
This type of solution may work well for someone who is still living in the home, but needs to pay medical bills or for assisted health care. The drawback is you’re going into debt and maybe spending any inheritance your family might receive.
Selling Home
Selling your home can also be an option. While probably the most common solution, it’s not practical for a person who wish to continue to live in the home. However, it has several advantages over the other options.
First, it allows you to have a lump sum of cash to pay for any current medical bills, as well as the cost of moving to assisted living. Secondly, it eliminates the costs and burden of maintaining your home, as well as eliminating any mortgage. Thirdly, it frees up family members from having to maintain the home, manage tenants if it’s a rental or pay the utility bills. Lastly, for many homeowners, the proceeds from the sale of their home may be completely tax free. Often, these family members live out of town and are unable to help with these basic needs or all of the work is left to a single family member to do.
One major drawback to selling your home, is you only get to do it once, unless you have other properties. You have no guarantee how long you will need to pay for assisted living care. The lump sum of cash you receive for the sale of your home might run out before you no longer need care.
Renting your Home
Renting your home has the advantage of generating monthly cash flow, without selling your home. Your home changes from being a liability, to a potential cash generator. This works best for homeowners, who own their homes free and clear, and can arrange for property management to maintain and manage tenants. Homes with high monthly mortgage payments may not have enough income left over after paying the mortgage, for property management or repairs.
On average, a debt free property will consume roughly half of it’s monthly rental income for repairs, vacancies and other expenses. So, if your home would generate $1,500 a month in rents, it will probably leave you $750 each month for you. If you have a mortgage, you will need subtract that from the amount you have remaining.
While you might consider managing the property yourself, it’s generally not a good idea if you are in poor health. Tenants can be stressful, and if you’re not careful take advantage of you. If you have a family member who is experienced managing rental property, they may be a good option for you.
Otherwise, you should hire a property management company, but that will leave you with less rental income. A typical property manager will charge you 10% of your monthly rent to manage a property with additional fees for repairs and tenant turnover. Care should be exercised when choosing a property manager to make sure that they have your best interests in mind. If not, a bad property manager can eat up all of your monthly income.
Want to know if your home would make a good rental? Check out our rental property evaluation calculator.
Reverse Mortgages
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.
Considerations around Medicaid and Reverse Mortgages
There are several important considerations if you are on Medicaid or have a reverse mortgage
Using in home care versus moving to assisted living
In home care is often more appealing to the senior. However, the costs of in home care are often more than the costs of living in an assisted living property. However, both Medicaid and reverse mortgages have financial repercussions if you are no longer living in your home.
With Medicaid, if you live in your home, it is excluded from being counted against your assets. In other words, Medicaid can’t force you to pay for expenses from the equity in your home.
However, if you sell or rent your home, it is considered an asset. You will be required to pay your medical costs from these sources before Medicaid will kick in. Both the lump sum from the sale of your home, as well as the monthly income from a rental would have to be completely spent before you can claim any Medicaid benefits.
Must continue reside in home
A reverse mortgage, as previously mentioned, requires you to continue living in your home. Many reverse mortgages have time limits as to how long you can be out of your home for medical care or any other reason. Some mortgages limit that time to as little as 30 days. This can have serious consequences if the borrower is hospitalized for any period of time or forced to move permanently into an assisted living facility. Your lender may require the property to be sold to pay back the mortgage if you exceed this time limit. If you don’t sell it in a timely fashion, your home may be foreclosed.
House is considered an asset if not living in home
As already mentioned, both Medicaid and reverse mortgages may require you to sell your home if you are not living in the home. Even if you are in good health now, this can cause worry should your health deteriorate. When you become ill, you don’t need the additional concern of being forced to sell your home, especially if it’s in need of repairs.
How long does it take to sell a house to move into assisted living?
The time to sell a house depends on several factors. Location, the current real estate market, and condition. Across the U.S., the time frame to sell a home ranges from 45 days to 160 days according to Zillow. This assumes that the home has been well maintained and updated. Unfortunately, many senior’s homes have not been modernized and have serious repair needs. Homes in poor condition often take substantially longer to sell and at significant discounts.
Bridge Loans and cash buyers
Bridge loans
Obtaining a bridge loan from a local bank may be an option if you are in need of 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.
Cash buyers
Cash buyers are another option for selling a home. If you are looking to sell your house in Harford County, Maryland and surrounds quickly and eliminate the traditional sales process, you may consider a cash buyer like Easy Outs Homes. Cash home buyers typically buy homes as-is, and are able to skip the process of borrowing from banks to buy your home. If your home is in need of repair or has deferred maintenance, you may be able to sell to a cash buyer in just days, instead of weeks. You may not sell for the same price as if your home was fixed up and sold through a Realtor. However, you may end up netting about the same amount, as you typically won’t have to pay commissions or other buyer incentives.
Should I sell before or after I move to assisted living?
Benefits of selling after you move
There are definite benefits to selling your home after you move into assisted living.
First, your home will be easier to show and sell to potential buyers. Seniors homes are often cluttered with years of keepsakes and family memorabilia. While important to the seller, they often make homes less attractive to potential buyers. Moving to assisted living before selling allows family members to organize and clean the home, before putting it on the market.
Secondly, when the home owner has already moved from the home, the homeowner doesn’t have to be constantly interrupted by prospective buyers coming through the home. Buyer’s lead busy lives and often want to view homes when it isn’t convenient for you. If the homeowner has already moved from their home, there’s less inconvenience from agents and buyers viewing your home.
Thirdly, selling an empty home allows your Realtor to stage the home in such a way, that attracts buyers. Staging consistently helps sell houses faster, and often for more money. Professional stagers have warehouses of modern furniture and accessories that will help potential buyers see themselves living in your home and raising a family there.
Drawbacks to selling after you move
One of the main drawbacks to selling your home after you move is the lack of immediate cash. You need to have the financial reserves. Once you move, you still have to pay for assisted care and continue to maintain your home’s mortgage and expenses. While your home is being sold, you still have to keep the utilities, pay the mortgage, taxes and insurance for the property. If your home takes longer to sell, you may need even greater financial reserves.
Benefits to selling before you move
If you or your family member is in good health, selling before they move may be a better option. First, it allows everyone time to pack and slowly distribute heirlooms to family members. While moving is always stressful, it is much less stressful when you time to pack and sort through things.
Reasons to sell a home before or after a move to senior living
The main reason to sell before moving to senior living is that a home sale is the primary source of funds for care. If a house doesn’t sell quickly, families accrue extra costs — like mortgage and tax payments, utility bills, insurance, and maintenance — alongside senior living costs.
Reasons to sell after moving to senior living include the following:
The situation is urgent. If you observe signs your parent is unable to live alone, or if they’ve been hospitalized after a fall or health event and can’t return home safely, waiting may not be possible.
Your key concern is managing stress. Seniors who live in their home throughout the selling process must declutter daily. They also need somewhere to go during showings.
You want to ensure ideal home staging. An empty house gives a real estate agent a blank canvas. They can set an ideal scene, and this could potentially appeal to more buyers.
Selling your house: What taxes are owed?
Selling a house to pay for assisted living doesn’t have to result in a hefty tax bill. In fact, in many cases, the proceeds from a home sale are tax-free. Specifically, an individual can exclude up to $250,000 in profit from the sale of a primary residence, while a married couple filing jointly can exclude up to $500,000, according to the IRS.
Seniors must meet two conditions:
They must own the home.
They must have lived in the home for two of the last five years.
A checklist for selling a house to pay for care
After you decide to sell your family member’s house, start defining milestones and goals. The process can often take four months.
Before listing, seniors and their families should do the following:
Decide on an ideal date to sell. Spring is prime home-sale time, so consider seasonality when you plan. If you can, use the preceding winter to knock out any repairs, updates, and deep cleaning.
Find a trusted real estate agent. The good knowledgeable realtor will take care of some stress related to the house sale so you can take care of your parents/relatives.
Research your area’s home values, and know what to expect. Though not typically necessary, seniors can ask their real estate agent to coordinate a home appraisal. An appraisal is an outside, professional assessment of a home’s value, and it should incorporate a visual inspection and research of market trends. Appraisals typically cost several hundred dollars.
Declutter and consider home improvements. Beard recommends a pre-inspection so sellers can make needed changes and avoid unexpected problems. A pre-inspection identifies significant safety and mechanical issues that may jeopardize a sale.
Simplify the selling process by gathering necessary documents
Before putting a house on the market, seniors or their families should have access to certain key documents:
The home’s sale contract. This confirms the owner of the home, when it was purchased, and what price the current owner paid. This also notes any terms and conditions that may have been communicated to the current owner before their purchase.
Maintenance records and capital improvement receipts. Diligent buyers will want to know how recently house repairs were made. In addition, proof of capital improvements — like a new roof, driveway, or flooring — can help sellers command higher profits.
Homeowners insurance documents. Review your policy to determine how long it will cover your house and belongings if you no longer live in the home. In many cases, insurance companies consider a home vacant after it’s been unoccupied for 60 days. If your parent moves before selling their house, this could result in a higher policy premium. Due to increased risks of theft, vandalism, and fire, insurers charge up to three times more to insure a vacant home.
Utility bills. Past utility bills can show that a seller is not delinquent on payments. They can also provide prospective buyers with an idea of estimated monthly costs.
Home appraisal. If you opt for a professional home appraisal, this can reassure buyers that a house’s listed price is fair and comparable to other properties in the area.
Homeowners association (HOA) records. If your parent is part of an HOA, these documents will show how frequently dues increased in the past, making buyers more aware of potential future costs.
Warranties. Simply put, warranties increase buyer confidence and act as a powerful marketing tool for real estate agents. If a buyer is considering multiple properties, a warranty or the lack of one could influence the decision.
Selling your parents’ home to pay for care when they have dementia
Sometimes having your elderly family members move into assisted living facility where someone can take a proper care of them is a better choice. Memory loss adds an extra challenge for seniors and families putting a house on the market. Unless valid paperwork states otherwise, only the homeowner can transfer the home to a buyer. However, two legal designations — power of attorney and guardianship — can empower adult children to make decisions for their ailing parents. Power of attorney and guardianship Power of attorney (POA) can help a trusted adult child or other family member fulfill a senior’s wishes. Real estate decisions, like selling a house to pay for care, count among the main reasons families set up this legal designation. To set up a power of attorney, the senior — or “principal”— must sign a document granting a person permission to make decisions on their behalf. Though power of attorney is often simple to establish, there are various types. An elder law attorney can help you prepare the power of attorney document, answer specific questions, and streamline the process. It’s best to set up a power of attorney in a senior’s early or middle stages of dementia. If deemed incompetent, a senior can’t execute the power of attorney. In these cases, families can petition for guardianship to sell a house. They’ll have to prove their senior loved one has significant memory loss, requiring a legal guardian to manage any property. While petitioning for guardianship with a court can be a crucial last resort, it’s a more extensive, lengthy, and expensive process than establishing power of attorney.
Maryland Resources To Sell Any Home
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