Posted by Brent_IL on March 25, 2002 at 11:00:09:
nt
Possible to save the house? - Posted by Mike
Posted by Mike on March 24, 2002 at 20:12:50:
Here is the situation. All recommendations and suggestions are welcome. What can we do so this person can stay in the house?
Property: 75 year old Cape, it?s a little run down, 8 rooms, 3 bedroom, 1 ½ bath, 1 car garage, in a very nice neighborhood/community of homes, average price tag $375,000. This one needs approx $40,000 worth of work to get the full asking price of $375,000.
Client: Single owner, 63 years young, unemployed, does not want to leave the property, wants to stay in the house. Currently collecting ?early? Social Security benefits as only source of income. Can not get a job right now because of upcoming surgery, and will soon need to pay for health insurance, at $400 per month. Just offered a ?reverse mortgage? and is thinking about it.
Current Lien: $60,000
What options are there?
Thank you,
Mike
Re: Possible to save the house? - Posted by Nate(DC)
Posted by Nate(DC) on March 24, 2002 at 21:50:21:
What’s wrong with the reverse mortgage?
NT
Re: Possible to save the house? - Posted by Brent_IL
Posted by Brent_IL on March 24, 2002 at 22:44:27:
In general, from the owner’s point of view, the major considerations are:
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The home owner must continue to pay for the taxes and maintenance; two costs that rise over time. These costs are eliminated with an outright sale.
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Unlike invested sale proceeds, the income stops when you move out.
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The property must be fixed-up completely before a loan is made. The repair money can come from the loan proceeds and escrowed, but the loan amount is already low without this cost.
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In addition to the FMV or ARV of the property, the cash available is based on current interest rates and life expectancy. A 65-year old male might get around 25%, while an eighty year old may get 50%.
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Loan costs. FHA charges two percent upfront and one-half point annually. Private lenders add junk fees as a hedge against the guy who lives to 110 as his property value declines.
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No inheritance for the kids.
Re: Possible to save the house? - Posted by Nate(DC)
Posted by Nate(DC) on March 25, 2002 at 10:28:40:
Brent,
In general terms, of course, you’re right. Those are all things one would need to consider in deciding whether to get a reverse mortgage.
Specifically in this case, however, it seemed that based on the info provided in Mike’s message that a reverse mortgage might be the way to go.
“- The home owner must continue to pay for the taxes and maintenance; two costs that rise over time. These costs are eliminated with an outright sale.”
If the owner sold and did a leaseback, their costs would also go up over time as the landlord needs to continue to make their profit margin as costs go up. Whether they are an owner or renter, this is true. Besides, there’s no real indication she wants to sell, nor is there any way for her to pay enough rent to live in a $375K house if her income is that low.
“- Unlike invested sale proceeds, the income stops when you move out.”
In this case, the owner’s stated goal is to remain in the house. Doesn’t sound like she wants to move anywhere.
“- The property must be fixed-up completely before a loan is made. The repair money can come from the loan proceeds and escrowed, but the loan amount is already low without this cost.”
This is true, and may be a consideration. To pay off the existing mortgage and do the repairs would be $100K and that’s about 30% of the value right there. Not much room for cash out beyond that. Then again, if they have no monthly housing payment, they may not need a lot of cash out.
“- Loan costs. FHA charges two percent upfront and one-half point annually. Private lenders add junk fees as a hedge against the guy who lives to 110 as his property value declines.”
Also true. But any alternative in this case will be somewhat high cost due to the limited income and condition of the property. Unless they want to sell outright and move somewhere else, which the poster indicated they don’t.
“- No inheritance for the kids.”
We don’t even know if that applies here.
That is why I posed my question back to Mike to find out a bit more about the specifics here - why WOULDN’T the reverse mortgage be a good idea for this person?
Regards,
NT