Purchase Reverse Mortgage or Post Sale Reverse Mortgage?

Seniors sold sign

I often see clients considering downsizing and selling their existing home to purchase a more modest home.

The decision: “Do I sell my existing home and pay all cash for the replacement home and THEN get a reverse mortgage line of credit or, do a reverse mortgage for purchase on the replacement home?

As well as being a licensed loan officer I am a real estate broker and have known in theory that it is risky to pay all cash on the new home and close escrow ASSUMING the replacement home will qualify for a reverse mortgage post sale, but have not had actual examples until, unfortunately, this year where I had several examples.

I did not meet with the individuals in these examples prior to the purchase of their replacement home; they came in post close of escrow to inquire about taking out a RM credit line. The sale of their prior home did not cover the price of the replacement home, causing them to dip heavily into savings accounts to pay all cash. In doing preliminary research on their properties I had to deliver the bad news: their replacement properties would not qualify for a reverse mortgage and they were shocked.

How could a reverse mortgage for purchase process, rather than paying all cash, have protected these folks? The RM for purchase process protects an individual via the real estate purchase contract contingency clause, giving them several weeks or more to go through the loan qualifying process with a loan officer, appraiser and underwriter working on their behalf to determine if the property and they will qualify for a RM. If the property and they receive loan approval they can confidently close escrow knowing their financing will be in place. However, if going through the process it is determined the subject property or they will NOT qualify for a reverse mortgage, the individual can walk away during the contingency period and not lose their earnest money deposit.

It’s wise to see a loan professional well in advance of selling an existing home and looking for a replacement as there are numerous RM pre-approval steps required.

 

Shawna McDonald, License Loan Officer, has completed hundreds of reverse mortgage loans and is approved with 10 reverse mortgage lenders. She is available by appointment. Sierra Foothills Reverse Mortgage 412 E. Main Street Suite N, Grass Valley, (530) 497-3010. Her website is www.SierraFoothillsReverse.com. NMLS #271335 | CalBRE #00585530 Borba Investments Inc. Company NMLS #76801 |Company BRE # 01446165 These materials are not from, and were not approved by HUD or FHA

 

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The Affluent Turn to Reverse Mortgages to Slow Down 401K Draws & The Myth Debunked, Again

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A fascinating article by the Wall Street Journal chronicles a trend that I too am seeing in my office: folks who own an expensive home free and clear, or have a small loan outstanding, coming in and establishing a reverse mortgage credit line to fund the upkeep of their home, their other monthly bills, and for travel. A couple of my clients just returned from cruises and have never felt more contentment in retirement as they do now, POST set up of a reverse mortgage credit line.

One comment universally expressed by all clients particularly caught my attention, and paraphrase: “We had to leave our beautiful home every day while we were working; now that we are retired we don’t want to move and down size, we want to fully enjoy our home, and yet, we want to do a little travel”

One goal also universally expressed by all: once the RM loan was complete, they were ceasing draws on their 401K’s beyond the required, all clients had monthly incomes, however it wasn’t quite enough for a comfortable lifestyle, thus they had been turning to draws on retirement funds.

Could they have continued to do so? Yes, however, by keeping future 401K draws to a minimum while the stock market is doing well, they would be allowing their 401K’s time to rebuild from the economic downturn. Increasing numbers of financial planners are recommending this RM credit line strategy as part of a 401k rebuilding plan.

Unfortunately I continue to need to debunk “the myth”. One of my clients reported back to me they were told, and I paraphrase, “You have now given the house to the lender”. This statement is incorrect: With any type of RM loan, the borrower(s) remain the owner(s) on title, thus the house is titled just like it would be with any other type of loan. And, just like any other type of loan, at the time the house is sold, by the borrower(s), or their heir(s), the RM loan is paid off and all remaining equity goes to the borrower(s) or their heir(s). As with any loan type, if home equity preservation is a goal, then borrowing modestly is advised.

Have questions? Call to schedule a private consultation or reserve a spot for my next monthly workshop: Thursday April 16th, 2015. Shawna McDonald Loan Officer, has successfully completed hundreds of reverse mortgages and is approved with 8 reverse mortgage lenders, ensuring clients receive low fees and great rates. (530) 497-3010. Her local office: Sierra Foothills Reverse Mortgage 412 E. Main Street Suite N, Grass Valley.                                                         The website is www.SierraFoothillsReverse.com.

The WSJ article referenced herein: “When Even Wealthy Homeowners Are Using Reverse Mortgages, The Question is: Why Aren’t You?” published on October 9, 2014.

The opinions expressed here are those of Shawna McDonald Copyright © 2015.     Shawna McDonald NMLS #271335 CA-BRE # 00585530 DBA Sierra Foothills Reverse Mortgage and Borba Investments Inc, DBA MLS Reverse Mortgage Auburn, CA NMLS #76801 BRE #01456165 ~ HUD approved lender.

Brand New Reverse Mortgage Loan Type, the HYBRID Reverse Mortgage is Here ~ We Have It!

 

NGS Picture ID:1168078       www.SierraFoothillsReverse.com

 

 

 

 

 

First New Reverse Mortgage Product in 5 years Introduced  For a long time we industry specialists have been asking for this product: the Hybrid Reverse Mortgage. Before getting into the details of this new HUD approved and FHA insured reverse mortgage product, let’s remember existing products: the fixed rate reverse mortgage, typically used to pay off an existing mortgage and the adjustable rate, typically used to establish a reverse mortgage credit line.

A concern expressed by some clients, regarding the current reverse mortgage credit line product, depending on their age, is that while the interest rate on what is spent is currently in the 2% start range, the rate could increase over the life of the loan to the cap of 10 % over the start rate. The interest rate adjusts up/down monthly and is tied to a stable index, the Libor. Over the last 15 years the Libor index has gone to a high of approximately 9% and hovered in the 3-7% range predominately.

Reverse mortgage borrowers NEVER accrue interest charges on their unspent credit line funds, and they are NOT making monthly payments on money they have spent, thus there is no possibility of a fluctuating house payment, however, interest is accruing on spent funds, and the higher the rate, the higher the loan balance will be at the time of home sale. Some of my clients are unconcerned about rate fluctuations: there are no heirs who are waiting to inherit house equity; some clients are less concerned because they are already in their 80’s, and some younger clients express concern.

The introduction of the new and already popular “Hybrid” reverse mortgage credit line addresses the rate concerns. The KEY feature of this product: the interest rate on spent funds can NEVER rise more than 5% over the start rate during the entire life of the loan. Thus, with the current start interest rates in the 2% range, the rate on what has been spent from the reverse mortgage credit line will never go above the 7% range. The starting loan rate is expressed in your loan application and locked during the loan process. As space is limited here, for any questions please feel free to give me a call.

Shawna McDonald, Loan Officer has completed hundreds of reverse mortgages. She is approved with 8 of the largest reverse mortgage lenders in the nation allowing the consumer 1 stop fee shopping. Her local office, Sierra Foothills Reverse Mortgage, is located at 412 E. Main Street Suite N, Grass Valley, (530) 497-3010. The website is www.SierraFoothillsReverse.com.

 

NMLS #271335 BRE 00585530 Borba Investments, Auburn, CA NMLS #76801 HUD approved