For many families, moving a family member out of their current home or place of residence and into residential long-term care can be a difficult process, both emotionally and practically. The main concern for most families is the well-being of their family members. Due to the high costs of long-term care, most individuals and families also have significant financial concerns during this process.
If your family member owns their home, one option is to leverage the equity in the home to help cover the cost of care. If your family member requires long-term care in a facility or community, it may be possible to sell their home and use the proceeds from the sale to cover some or all of the costs of long-term care.
Although there are a variety of other ways to take advantage of the value of your family member’s home, including traditional home equity loans and reverse mortgages, one way to proceed is to sell the home outright. This may be a good option for homeowners who require long-term residential care and do not have a spouse/partner, child, or another family member currently living in the home.
Transitioning into long-term care
At some point, most families will have to consider long-term care options for a family member, although not all families choose residential care. According to the U.S. Department of Health and Human Services Administration (HHS), approximately 70% of U.S. seniors will require long-term care at some point in their lives, although the majority will receive some type of in-home care as opposed to long-term residential care.
Although there are some seniors who never require long-term care services, approximately 20% will need senior care for more than five years, and 37% of seniors will require long-term care in a facility as they continue to age.
The decision to move into a senior living or long-term care community is different for everyone. It is worth noting that many people only ever require in-home care and/or adult day care services, but for those who require residential care, the decision to move out of one’s home can be difficult.
Some seniors choose to move into an independent living community when they are still able to live alone or with a spouse/partner and do not require extensive support or assistance. Others may remain at home until they require assistance with their activities of daily living (ADLs), such as bathing, dressing, eating, and toileting, at which point they may move into an assisted living facility (ALF). In addition to independent and assisted living, other types of long-term senior living and care options include:
- Nursing home care
- Continuing care retirement communities (CCRCs)
- Adult care/foster homes
- Memory care units
The type of care your family member requires depends on a variety of factors. Each individual requires different services and amenities. It is important to consider the unique needs and preferences of your family member and to consider all of the available options before making the decision to move into a long-term care community.
Moving your family member out of their current home may be especially difficult if they have lived there for many years, if they share the home with a spouse/partner, or if the home has sentimental value.
Costs of long-term care
Long-term care is expensive. According to the AoA, in-home health-aide services average costs $20/hour. Those who require residential care or round-the-clock assistance and/or supervision face even steeper costs. Living in a one-bedroom ALF costs the average resident $3,628 per month, while nursing home care costs $7,698 per month. Approximately half of all individuals who live to be 65 years or older will need long-term care services at some point in their life, and the average cost of this care is $138,000.
Many families worry about the short- and long-term costs associated with senior living and senior care, particularly in cases where residential care is required for several years. Most seniors do not cover the costs of long-term care out-of-pocket. Various resources are available to seniors who need help paying for long-term care, including long-term care insurance, Medicaid, and other state-run programs.
As noted earlier, seniors who own their own homes but require long-term care in a facility or community can often leverage their home equity to help cover the costs associated with care. One way to do this is by selling the home outright and using the proceeds to pay for care. There are some important considerations when determining if this is the right option for your family member, but selling your family member’s home to finance long-term care may be a good option under the right circumstances.
When to sell a home
Making the decision to move a family member into a long-term care facility can be an extremely difficult process, and many factors must be considered. As noted earlier, long-term care, particularly residential care, is expensive. Once your family has decided that a long-term care facility or community is the best option for your family member, it is important to consider all of the available resources to help pay for the associated costs.
While social security, retirement savings, long-term care insurance, Medicaid, and other resources can help, many individuals who require long-term care find that they require additional funds to help cover the high costs of long-term care. There are a variety of ways to leverage the equity in your family member’s home to help finance their care, including traditional (fixed-rate) home-equity loans, home equity lines of credit (HELOCs), reverse mortgages, and renting out the home.
For those who own their home and are no longer able or no longer wish to live in their own home, selling the home may be the right decision. This option is not available to all seniors requiring residential long-term care. Selling a home is not an option for those who do not own a home or for those who wish to continue living in their current residence and receive in-home care.
In cases where selling a home is an option, there are a variety of factors to consider. It is important to consider your family member’s unique needs, preferences, and circumstances before making this decision.
As previously discussed, the high costs associated with long-term care are a major concern for most families, especially since it is often difficult to predict how long a person may require long-term care and whether or not their needs will increase substantially over time.
In addition, not every senior owns their own home; however, seniors are much more likely than younger people to own their home. According to Zillow, over 60% of those aged 75 and older own their own home and are not responsible for monthly mortgage payments.
Many older Americans who own their homes have a large percentage of their wealth attached to their homes. In many cases, the equity in seniors’ homes may be leveraged as a way to help cover the costs of residential long-term care. If your family member requires residential care and owns their home outright, selling the home and using the proceeds to help cover long-term care costs may be a good option, particularly if they do not have a spouse/partner living with them.
According to the National Association of Realtors (NAR), American homes sold for an average of $289,200 in 2017, although it is worth noting that home prices vary substantially based on a number of factors, including location (rural, suburban, or metropolitan areas), square footage, lot size, number of bedrooms and bathrooms, and many other factors.
In some cases, it is possible to use the proceeds from the sale of your family member’s home to cover all of their long-term care costs for the rest of their life depending on the type of long-term care your family member requires, the value of their home, and whether or not they own their home outright.
Below are some important considerations regarding the financial implications of selling your family member’s home in order to finance long-term care:
- Fees and monthly costs associated with long-term care
- How long your family member may be expected to require care, and whether or not their care needs may increase over time
- Other expenses such as insurance, medical care, pet care, etc.
- Expenses of a living spouse/partner or dependent
- The current value of the home
- Potential that the home may increase in value in the future
- The geographic location of the home
- Whether or not your family member has an existing mortgage
- Cost of any repairs, renovations, or preparations prior to selling the home
- Value of the contents of the home (expensive furniture, jewellery, etc.), and whether or not any items may need to be placed in storage
In addition to the above list, it is important to consider how a home sale may affect your family member’s Medicaid eligibility. Medicaid is intended to provide assistance for low-income individuals. Most states require that beneficiaries meet both functional and financial requirements in order to qualify.
Under most circumstances, when Medicaid eligibility is determined, your family member’s home equity will be excluded from their net assets as long as they live in the home. However, once the value of the home has been liquidated through a home sale, the proceeds of the sale will most likely be included in their net assets. Therefore, it is quite possible that your family member may no longer meet the financial eligibility requirements in their state of residency following the sale of their home.
It should be noted that even if your family member no longer qualifies for Medicaid on the basis of net assets following a home sale, it is likely that they will qualify again in the future if the proceeds of the sale are spent down over time. It is important to understand the specific eligibility requirements and policies of your state’s Medicaid program and determine how the sale of a home may affect your family member’s eligibility prior to making any decisions. Learn more about Medicaid requirements in your state here.
Selling your family member’s home is a big decision, particularly when the home has been a part of the family for many years. In addition to all of the above financial considerations, it is important to recognize that selling a family member’s home may be difficult emotionally and may also require significant investments of time, energy, and attention.
Before making the decision to sell your family member’s home, there are some other important things to consider, including:
- The emotional difficulty (stress, grief, etc.) your family member may experience with selling their home
- Whether or not a spouse/partner or other family member is currently living in the home
- The contents of the home (sentimental or financial value)
- The amount of time and effort it will take to prepare the home to sell
- The logistics of moving your family member into a long-term care community while also trying to sell the home
Financing long-term care
Once your family member has decided that selling their home to finance their long-term care is the right option, it is important to understand the options available to help make the process as smooth and cost-effective as possible.
Bridge loans are short-term loans traditionally used to cover the transition time between two financial transactions. Home buyers often use bridge loans during the interval between selling one home and buying another. However, Elderlife Financial recently introduced a bridge loan specifically designed to assist seniors, and their families pay for long-term care until other funds become available.
Selling a home can take time, particularly if repairs or renovations are required. In some cases, preparing a home for sale, finding a buyer, and going through escrow and closing can take up to a year or longer. Using a bridge loan to pay for long-term care while you sell your family member’s home can help alleviate some of the financial and psychological pressure to sell the home quickly and may allow you to take the time you need to prepare the home and wait for the best offer.
Elderlife offers bridge loans up to $50,000 (or up to $500,000 for those moving into a CCRC when the loan is secured by real estate or securities), which must be paid back in 5 years. The funds are sent directly to the ALF or other residential long-term care community, although a small percentage of the loan can be provided to the family to help cover moving costs, etc.
Because bridge loans are unsecured, interest rates are generally higher than those of home equity loans. However, in some cases, ALFs will pay the interest on the loan for you as an incentive to choose their facility essentially allowing you to borrow for free.
In order to qualify for a bridge loan, you must have a plan for future funding. If you plan to sell your family member’s home, the sale proceeds will be your source of future funding. Individuals applying for bridge loans must also have good credit, and one’s income, home equity, and assets may also be considered. In many cases, multiple family members may apply for a bridge loan together as co-borrowers, and the senior family member does not necessarily need to be included on the loan since there is no age requirement to qualify for a senior care bridge loan.
Immediate annuities (sometimes called income annuities or payout annuities) are long-term agreements between investors and insurance companies; the insurance company offers the investor regular monthly payments in exchange for a lump sum of money. For seniors who have a substantial amount of cash on hand following the sale of a home, an immediate annuity may be a good option since payments start right away and continue until the investor dies
The amount of money you receive each month depends on a variety of factors, including:
- The amount of your lump-sum investment
- Interest rates at the time of your investment
- Your age and gender
Generally, the older you are when you purchase an annuity, and the more money you invest, the higher your monthly payment will be. Gender plays a role because women tend to live longer than men so monthly payments for women are usually slightly lower.
If your family member requires immediate and ongoing monthly income to help pay for the cost of long-term care, investing the proceeds from the sale of their home in an immediate annuity may be a good option.
Other ways to pay for senior care
In addition to selling your family member’s home, there are some other ways that seniors can leverage home equity to pay for long-term care. Some seniors do not wish to sell their homes upon moving into an assisted living or senior care community.
Renting out the home
Those who require residential care but want to retain ownership of their homes may decide to rent out their home and use the money generated from tenants to pay some of the costs of long-term care.
Renting out your family member’s home requires time and effort. Your family member will likely need to hire a property manager or have a friend or relative manage the home while it is being rented out. Many people are not comfortable renting out their homes to strangers; however, if your family member does not want to sell their home but requires long-term care, renting the home out to generate some income may be a good option.
Home equity loans
In addition to selling or renting out the home, another way to use your family member’s home equity to finance long-term care is through a home equity loan. These kinds of loans allow seniors and other homeowners to access some of the value of their homes without having to move out of their homes or sell the home.
There are essentially three types of home equity loans: traditional home equity loans, HELOCs, and reverse mortgages.
- Traditional (fixed-rate) home equity loan — The homeowner is loaned a fixed amount of money, while the home acts as collateral and typically makes payments on a monthly basis, with relatively low, fixed interest rates
- — The homeowner is loaned money on an as-needed basis (again, while the home acts as collateral), and they may make withdrawals up to their credit limit. The borrower only pays back the amount they actually borrow
- Reverse mortgages — The homeowner receives the loan and is not required to make payments until the home is sold or the borrower moves out or passes away. With adjustable-rate reverse mortgages, the homeowner can usually choose whether to receive the loan as a line of credit, a fixed monthly payment, a lump sum, or a combination. Those with fixed-rate reverse mortgages may only receive their loan as a lump sum
It is important to note that while traditional home equity loans and HELOCs generally do not require homeowners to live in the home, reverse mortgages do. Therefore, reverse mortgages are typically only an option for seniors who plan to continue living in their home and only require in-home care or adult day care or for those who need residential care but still have a spouse/partner living in the home.
Other financial options
In addition to home equity options, there are a number of other resources for seniors who require assistance to pay the high costs of long-term care. Whether or not your family member plans to take out a home equity loan or sell or rent out their home to help pay for care, many of the resources listed below may also be worth considering.
- Savings and non-residential assets such as stocks, bonds, or jewels
- Social security, pensions, or other retirement income
- Medicaid waivers
- Long-term care insurance
- Life insurance
- Veterans’ assistance, including the Veterans Aid and Attendance (A&A) benefit
If your family member plans to use some combination of the above resources to help cover long-term care costs, it is important to understand how state-run assistance programs may interact with private financing options. For example, Medicaid and Veterans Administration (VA) pension programs have financial eligibility requirements that place limits on the net assets and incomes of beneficiaries. It is important to understand all of the eligibility requirements for these programs and how any major financial decisions may affect your family member’s ability to qualify.
Selling a house to pay for care FAQs
1. Will selling my family member’s home cover all of their long-term care costs?
It depends. Many people are able to cover the entire cost or a substantial portion of the cost of long-term care by selling their homes. Whether or not a home sale may cover your family member’s entire long-term care costs depends on a variety of factors, including:
- The market value of the home. In 2017, the average home in the U.S. sold for $289,200; however, home prices vary significantly based on a number of factors.
- The type of care your family member requires. CCRCs, skilled nursing home care and memory care tend to be significantly more expensive than other forms of residential care, such as independent or assisted living
- How long your family member requires care, and whether or not their care needs and level of care increase over time and with age. According to the U.S. Department of Health and Human Services, approximately one in five seniors requires care for more than 5 years, although women tend to require care longer than men do
2. What taxes will be owed if we sell the house?
Taxes are an important consideration in any major financial transaction; however, the proceeds of a home sale are tax-free for most seniors, depending on the market value of the home and any existing mortgage. According to the U.S. Internal Revenue Service (IRS) website, profits from a home sale are tax-free for married couples who file taxes jointly up to $500,000. Profits for individuals are tax-free up to $250,000.
Home sale profits exceeding these limits may be subject to a 15%-20% capital gains tax depending on their tax bracket, although those in a 10%-15% tax bracket are not required to pay any capital gains tax.
3. How can I optimize the value of my family member’s home?
There is a lot to consider when putting a home up for sale, particularly if your family member cannot help prepare the home for sale and if you are also busy moving them into a long-term care community. For most people, the first step is to hire a listing agent. It is important to be sure you hire the right person. An experienced and skilled agent will be able to help with many aspects of listing and selling your family member’s home.
Below are a few things to consider when preparing your family member’s home for sale:
- Look at other similar homes in the area and discuss the current real estate climate with your listing agent so you can understand where your family member’s home fits into the local market and price it accordingly
- Carefully prepare your family member’s house to be sold by cleaning, decluttering, and ensuring that any necessary repairs or improvements are completed before putting the house on the market. Some homeowners choose to hire a professional stager or interior designer to help prepare their house to be seen by potential buyers, although many people skip this step. It may also be helpful to hire a professional photographer for marketing purposes
- Make sure that your listing agent advertises your family member’s house by highlighting the biggest selling points and posting the listing online.
- Always be ready to negotiate any offers you receive on the home