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How to Leverage a Parent's Home to Pay for Assisted Living
Written by OurParents Staff
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4 minute readLast updated March 9, 2023
Financial stress from moving a loved one to assisted living can be overwhelming, especially when the need arises due to unexpected health changes. When unforeseen circumstances occur, your loved one may be able to leverage the value of their home to cover senior living costs and future bills. Doing so can help ensure your loved one is in the living arrangement they need to stay healthy and comfortable.
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Assisted living is a popular option for older adults who need help with daily activities, but it’s increasingly expensive. The national median price tag for assisted living in 2021 was $54,000 per year, according to insurer Genworth’s annual Cost of Care Survey. Most people move into assisted living on short notice after a change in mobility or health status, so the time to come up with funds is often short. If the combination of cost and time pressure has you in a bind, there are two main options for leveraging your parent’s house to pay for senior living.
Using a bridge loan until the home sells
The easiest way to leverage the value of a loved one’s home is by selling it and using the proceeds to pay for long-term care. In a hot real estate market, your parent may be able to sell their home quickly, without having to invest in major upgrades or repairs to get it ready to show. But 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 pay for your loved one’s care.
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Keeping the home and taking out a reverse mortgage
Reverse mortgages are a better solution when one only parent is moving to assisted living while the other plans to remain in the home. They’re also an excellent option for seniors who need a way to pay for in-home care so they can 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. The upsides to a reverse mortgage are:
- 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.
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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 at the Federal Trade Commission website.
- Your parents must budget for and pay property taxes and insurance over the life of the loan.
- Your parents must keep the home in good repair or the lender can end the loan.
- If the home is vacant for a year or more for any reason (e.g., spousal illness, an adult child relocated for work) the lender may end the loan and sell the home for repayment.
- If 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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