As of 1/1/2009, seniors age 62 and older can use a federally insured Reverse Mortgage to purchase a home. Under the same HECM program that is being used by many seniors to access the cash equity in their home, seniors now have another tool to use when they look at purchasing a new home.
The FHA insured HECM is a huge improvement to the old Fannie Mae Homekeeper that could be used to purchase a home.
As it currently stands, a senior looking to purchase a home would either have to pay cash or qualify for a mortgage based on their fixed income. For many, this would liquidate their savings or prevent them from buying a home that they felt comfortable living in.
With the new program, a senior could either purchase more home without having a monthly mortgage payment, or free up a significant amount of their cash to live on or invest elsewhere.
While we don’t know all of the details, we can assume that the lending limits for purchases will be similar to the limits for refinances. If so, here are some examples of what you could expect:
A 62 year old borrower could purchase a $250,000 home with an approximate down payment of $120,000. There would be a lien against the property, but there would be no monthly mortgage payment. As with a reverse mortgage used for a refinance, the loan, plus interest would be due and payable upon death or 1 year after moving out of the property.
If this same borrower was 75, the $250,000 home would require a down payment of approximately $90,000.
Look for more details here as the dust settles. Technically, we can’t even take an application until 1/1/09, so I don’t have a calculator that will give me more exact figures.
That said, if you are a senior, and looking at purchasing a home next year, you should at least consider using a Reverse Mortgage.
Call me, Larry, if you have any questions. 503-421-0096
Jack and Betty own a duplex that is completely paid off. At 79, Jack is still driving truck but is seeing a downturn in his income due to the economy. Last year they made over $90,000 between driving, a couple of pensions and SSR. They haven’t rented out the 2nd unit in the duplex for a few years as there isn’t enough room in the driveway for more then 2 cars. Parking on the street disappeared several years ago when the city widened their street.
Jack’s concern was to be able to pave over the yard and create more parking, and for Betty to have access to cash should she need it if Jack were away from town on a trip. Betty was concerned about the ability to pay their bills with Jacks reduction in work. They both wanted to access cash as they need it rather then tap all of the equity at one time. They also would like to be able to leave some money to a Niece and her husband.
We looked at taking out a traditional Equity Line of Credit. While it would have been the least expensive option up front, it would have required them to make a monthly payment. At that point, the rent from the other side of the duplex would have covered the new mortgage debt with a few hundred dollars left over.
After talking with Jack and Betty, my solution was to use a HECM 175 Reverse Mortgage with a cash draw in an amount sufficient to make the needed repairs to their property and give nice cushion for the remainder of the year. This also left them with a sizable line of credit that will continue to grow as their property appreciates.
This loan is setup so that if they use their equity wisely, and if the home appreciates at 5% per year, their equity will never be exhausted. In fact, if they live to age 100, there will still be roughly $357,000 in equity after paying off the loan balance.
While Jack and Betty didn’t “need” a Reverse Mortgage, they have found that it has allowed them to do some things that need to be done without selling their home or making drastic cuts to their living. It also is giving them the peace of mind in knowing that they have unlocked the equity in their home should they need it.
While this isn’t sophisticated mortgage planning, it is solving a real life problem for real clients.
Call me if you would like to see if a Reverse Mortgage is right for you.
Whether or not we are in a recession or just feeling the effects of inflation, the bottom line is things are more expensive then they used to be. And I’m not talking about nickle candy bars costing a dollar.
Gas is now over $4 per gallon and expected to keep going higher. This has affected almost everything we buy since it takes trucks to get most of our goods to market. One solutions seems to be to switch to ethanol. Many farmers have jumped onboard and are growing corn to sell for fuel. This has added to the rise in cost of food as less land is available for growing crops.
The end result is that most people are feeling squeezed by the economy and having problems making ends meet. Senior citizens are not immune to this either.
In a recent poll, AARP reports, in it’s June 08 Bulletin, that 69% of seniors age 50-64 indicated that they are finding it more difficult to pay for essential items like food, gas and medicine. 59% of seniors age 65 and older reported the same. The scary fact is that 26% of seniors age 50-64 and 19% age 65 and older have prematurely withdrawn funds from the retirement accounts. This is alarming!!
For those seniors who haven’t retired yet, this will drastically affect their ability to enjoy their retirement, or force them to work longer. For those already in retirement, pulling from the principle of their retirement accounts throws off track their retirement income. For many, the goal is to live off the interest and leave the principle alone.
Financial planners I speak with tell me that most of their clients have done a good job planning for retirement, but they couldn’t anticipate $4 per gallon gas and the trickle down impact of that. They are fearful for their clients future. For many, a Reverse Mortgage can provide a solution to this problem.
One of the benefits of the recent Real Estate boom was an unexpected increase in property values. For those who have owned their homes for more then 5 years, and didn’t pull the equity out, there has been an incredible increase in equity. This also wasn’t part of their retirement plans. The usual “expected” property value increase is 4-6%. Over the last few years we saw values increase in some markets by 25% or more per year for several years in a row.
I believe that many seniors can benefit from tapping into this unexpected gain to counter the impact of the current economic woes.
In Oregon, we are still seeing modest increases in most markets. More then anything, we are getting back to normal. Many of us however are sitting on a small fortune. The question is whether or not it can easily be accessed. Following are several ways:
Family Gifts or Loans - While this is probably the preferred method, many seniors will not ask their kids for money. Also, most of us are in the same situation. In order to help others we have to give up something ourselves. For many, helping their parents means delaying retirement themselves.
Home Equity Line of Credit- This is an inexpensive way to unlock the equity, but as you use it, you have to pay it back. The more you use, the larger your monthly payment will be. If you stop making a payment you risk going into foreclosure. If you know for sure that you will be selling you place within a year or two, this is still one of the best options.
Sell and move to a smaller home or condo - This can be a good solution if you truly want, or need to move, but it also comes with expensive closing costs on 2 properties and and you will leave many memories behind. This may also be your only solution if you don’t have a lot of equity in your property.
Reverse Mortgage - For many, this will be the best solution. A properly structured Reverse Mortgage will improve the quality of life for those who find themselves short of cash or concerned about the future.
These are just a few exanples of how a Reverse Mortgage can help you or your loved ones through these trying times.
My advise? Call me. Let’s discuss your options and see if a Reverse Mortgage is the best option.
Larry Morris, CMPS 503-476-3854
If you are an Oregon Senior Citizen and are having problems making your county property tax payment, the State of Oregon Property Tax Deferral Program may be the solution for you. If you qualify, you can defer your taxes until a later date. To qualify:
If you are married and apply jointly with your spouse, you both must be 62 years old on or before April 15. If only one spouse is 62, you must file your application as an individual.
Joint owners—Two or more people may apply for deferral as joint applicants. Both must be 62 years or older.
The taxes are deferred until you sell, move out or die…very similar to the events that would cause a Reverse Mortgage to become due. The deferred taxes accumulate at a rate of 6% interest per year, which is often higher then the Reverse Mortgage interest rate.
The Tax Deferral program can be used in conjunction with a Reverse Mortgage to free up even more cash on a monthly basis, or they can be used separately.
If you are behind on your county property taxes, a Reverse Mortgage can be used to bring you current. We will then help you get enrolled in the State Tax Deferral program if you qualify. If you don’t qualify for the Tax Deferral Program, a Reverse Mortgage might be able to help you make your payment.
If you would like more information on this program, feel free to give me a call.
Larry Morris
