At a recent social gathering, friends of yours mentioned that they’d narrowly succeeded in winning the bid for their new home only because they’d been able to make a cash offer. The only way they’d been able to raise that cash before selling their prior home, they revealed, was that they’d. borrowed money using the stocks in their brokerage account as collateral.
Since the two of you are planning to relocate within the year, this tactic sparked your interest. You became quickly disabused of the notion after discussing the possibility with your own financial advisor. He explained that, if the assets you’d be using as collateral were to fall in value, you’d be forced to sell those holdings (possibly owing tax) to satisfy the debt. What’s more, you realized, you don’t have nearly enough in assets (other than investments in retirement accounts) to make a big difference in your home-buying plans. You’ve both retired ten years ago, and the goal is to downsize to a smaller, but more updated home in a 55+ community.
A HECM (Home Equity Conversion Mortgage) might offer one way to accomplish your goal. The concept – you would be financing the purchase of your new residence with a combination of a one-time down payment and a Lifestyle Loan (another name for a HECM for Purchase). The pre-qualification process for the HECM will ensure that your offer will be treated seriously, and remember – as long as the new house remains your primary residence, there will never be a requirement to make mortgage payments.
Meanwhile, in order to finance the cash down payment, you might consider a short term draw from your IRA or 401(k). Subject to IRS rules, if you replace the funds within a 60 day timeframe, you can avoid paying tax on the withdrawal.
This combo may not have the power of an all-cash offer to the home seller, but your pre-approval on the reverse mortgage will be a strong sign of your serious intention to buy the new home. In a way, you’ll be approaching the home-buying process in reverse!
Home Equity Retirement Specialist
NMLS # 1595194
Serving the State of Indiana
p (317) 644-2595 c (765) 516-0130
e [email protected]
2169 East Rutland Lane, Martinsville, IN 46151
Corporate NMLS #1025894