If You Have Not Sold a Property Using a Reverse Mortgage, You Are Missing A Huge Market
If You Have Not Sold a Property Using a Reverse Mortgage, You Are Missing A Huge Market
Myth: You Didn’t List a Senior’s Home Because they Couldn’t Afford to Sell because of Bad Credit, lack of Equity or Poor Income:
So, you looked into selling, or downsizing, for your client and told them they were not a candidate to sell and buy a new home because:
1. They didn’t have enough equity to buy a new home that they could afford.
2. You couldn’t qualify for a decent mortgage due to lack of income to qualify.
3. You have poor credit and can’t qualify for a new loan.
The first assumption (No. 1) is based upon the idea that one doesn’t want a mortgage on their next house and would prefer to purchase one free and clear as most seniors on a fixed income would because they don’t want to make payments. For example, let’s just say you have a $250,000 first mortgage on your present home and you wanted to buy a $500,000 home, so you would have to take a $250,000 mortgage to do so. If one took a reverse mortgage instead, they could put $250,000 down and then borrow the other $250,000 AND NOT HAVE TO MAKE ANY PAYMENTS ON IT FOR THE REST OF YOUR LIVES, regardless of credit or and income qualifying. There is still a minimum income required for the loan, but not for qualifying for the loan. It is a minimum income requirement of $900 a month per individual.
Using a reverse mortgage gives you 50% more buying power because you don’t have to make a payment on the mortgage you are getting to buy your new house. In other words, you could qualify for a $500,000 home and only have to put $250,000 down and not have to make any payments on the $250,000 mortgage during your lifetime. This means that if your client was netting only $250,000 in their sale, they could buy a $500,000 home and still make no payments just like buying a home free and clear.
What About Bad Credit? No Problem
Additionally, if your client’s credit is very bad, you can still get a reverse mortgage as long as you are not in default on your mortgage now. Even charge offs and judgements won’t keep your client from qualifying. You cannot be currently in Bankruptcy.
For any 30 day lates on housing related payments (late on fire coverage, property taxes or HOA dues) in the last 2 years. a Life Expectancy Set Aside (LESA) account will be set up that will pay for those items automatically over your lifespan. It is very similar to an escrow account and proceeds are taken out every month to pay those housing expenses. So if your property taxes are $3,000 a year, fire coverage $1500 a year, then $4,500 x your life expectancy in years would be put in a separate escrow account out of your equity. If your life expectancy is 20 years, then 20 x $4500 is $90,000. I don’t recommend you do this voluntarily as everyone on the web recommends would. If you do, you pay interest on the $90,000 starting on day one. It is better to draw out these expenses on your own and pay the interest on those amounts yearly as you need them.
What About the Heirs?
When the home owners die, the heirs have to either refinance the home into their own names, if there is equity left, or sell the home in 6 months. They cannot keep the same loan or assume it.
Ralph Migliozzi,
Broker Originator Serving Northern California
NMLS 282851 DRE #01002038
(p) 530-330-3073
