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How to Leverage Your Parent’s Home to Pay for Assisted Living
Written by OurParents Staff
about the author
6 minute readLast updated February 26, 2024
Assisted living, a widely chosen option for seniors requiring assistance with everyday tasks, has sparked conversations for many families. Typically, the transition to assisted living occurs rapidly, often due to sudden changes in health or mobility, leaving limited time for families to arrange the necessary finances. Assisted living has also become notably costly. If you’re in a similar situation of facing tight deadlines and financial challenges, there are two primary ways to finance senior living expenses by leveraging your parent’s home.
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Option 1: Using a bridge loan until the home sells
The easiest way to leverage the value of your loved one’s home is by selling it and using the proceeds to pay for long-term care. This process allows for immediate financial relief. In a strong real estate market, you might be able to sell the home fast without needing significant upgrades or repairs. When the market is slow and a home is unlikely to sell right away, a bridge loan can allow your loved one to move into senior living before the home sells. Bridge loans are offered by lenders who often specialize in working with senior homeowners. With a bridge loan, the lender typically pays their assisted living community directly. Once the home sells, the bridge loan is paid off from the proceeds, and the remaining money is available to your loved one. The process of selling a house to move into assisted living helps bridge any financial gaps during this transition period.
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Our free tool provides options, advice, and next steps based on your unique situation.
Option 2: Keeping the home and taking out a reverse mortgage
Another option is a reverse mortgage. Reverse mortgages are a better solution when only one of your parents is moving to assisted living and the other plans to remain in the home. This is also an excellent way to pay for in-home care if the senior wishes to remain in their home and age in place. These loans, also called home equity conversion mortgages (HECMs), must comply with extensive federal rules. Borrowers must be at least 62 years old and must meet with a qualified loan counselor before taking the loan, among other stipulations.[01] The upsides to a reverse mortgage are: The potential drawbacks are: Despite the potential downsides, a reverse mortgage can make the most financial sense for couples or extended families who need assisted living and don’t have other savings or a long-term care policy to cover the costs. You can find more information about reverse mortgages on the Federal Trade Commission website.
- There’s no monthly loan payment to make.
- Reverse mortgage funds usually don’t affect Social Security income.
- In most cases, the money from the loan isn’t taxable.
- At the end of the loan, your loved one’s estate can’t owe more than the home’s appraised value at that time.
- You must budget for, and properly pay, property taxes and insurance over the life of the loan.
- The home must remain in good repair or the lender can end the loan.
- If the home is vacant for a year or more for any reason (such as a spousal illness or an adult child relocated for work), the lender may end the loan and sell the home for repayment.
- If the surviving family can’t pay the appraised value of the home when the loan is due, the lender will sell it on the open market.
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Can I sell my parent’s house if they have dementia?
If your loved one is living with dementia and can no longer make decisions, selling their home to pay for assisted living might require extra legal steps. You may need to consult a lawyer or legal expert for guidance. If you have power of attorney for their property and finances, you can make decisions for them. It’s crucial to include your parent in the process as much as they are able. A doctor’s assessment of their mental capacity can help determine the best way to proceed. If you’re interested in learning more about the transition to assisted living, contact a Senior Care Advisor. Our team of experts can explain the options and costs and help you choose a solution that meets your parents’ needs, all at no cost to you.
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References
U.S. Department of Housing and Urban Development. (2024). How the HECM program works.
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