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To initiate a reverse mortgage might cost 10-15k going out the gate. WHY? I once got an equity loan for 0. Are the high fees mandated by law? There's no reason for the fees to be sky high and that alone probably discourages many seniors from getting one so the banks that push them are shooting themselves in the foot, it seems to me.
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
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+ FHA guarantee, (Those aren't free)
An additional issue is the age amortization if one spouse is significantly younger (this greatly reduces your payout), also current lower appraisals drop your potential equity.
I personally can't see why one would do a Reverse Mortgage for an equity pull, instead of a no fee HELOC; UNLESS they intended on outliving their estimated lifespan and continue to be able to live in the home (2 unlikely scenarios, but possible).
they have to include an insurance aspect in case they can not recover full value and if you elect tenured payments then everything after 100 tears old is on their dime.... its still an outragious amount considering they will only loan you up to about 60% of the homes value and then deduct the fees. unless you got a home over 400-500,000 thats a killer paying so much in fees.
its really not going to give you as much as you may think if the payments are tenured as they subtract your age from 100 and divide whats left after fees and interest out and thats your payment... if your 62 the typical 150,000 loan is divided over 38 years
you can get a higher payment but then you risk running out of credit line and equity to early
Better to just sell the house and (here's the secret) carry the paper just like banks do. One can potentially DOUBLE their principle through amortization.
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
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Quote:
Originally Posted by thrillobyte
Better to just sell the house and (here's the secret) carry the paper just like banks do. ...
That is what I recommend to folks who have adequate reserves elsewhere (in case of default).
I insist on 30% down and automatic payments from buyer when advising senior sellers. + 5 yr balloons with option to continue. (for benefit of settling estates).
Currently I have found buyers to be very reluctant to go with 'owner-finance', as 30yr rates are attractive (if you can get a loan). I don't blame them, and cash out is fine with my sellers too.
the reality is most people who take reverse mortgages do so out of desperation not because they want to.
if they need money just sell the house... dont hold the paper. the last thing they want is to get involved with foreclosing, maybe getting back a house thats ill maintained or vandelized. to much risk holding the note for someone thats not got the resources to deal with getting the home back again , thats my opinion.
so far i know 3 friends who sold homes and 2 who sold businesses that way and all had the deals go bad. the two with the businesses were absolute horror stories as they both lost the franchise rights on the businesses they sold and held the notes on.
the worst move anyone can do is either be a landlord or hold notes on things if they havent got lots of resources to support things when deals go bad because eventually deals do.
as an investor and a landlord for most of my adult life i can can tell you some of my own horror stories
That is what I recommend to folks who have adequate reserves elsewhere (in case of default).
I insist on 30% down and automatic payments from buyer when advising senior sellers. + 5 yr balloons with option to continue. (for benefit of settling estates).
Currently I have found buyers to be very reluctant to go with 'owner-finance', as 30yr rates are attractive (if you can get a loan). I don't blame them, and cash out is fine with my sellers too.
Quote:
Originally Posted by mathjak107
the reality is most people who take reverse mortgages do so out of desperation not because they want to.
if they need money just sell the house... dont hold the paper. the last thing they want is to get involved with foreclosing, maybe getting back a house thats ill maintained or vandelized. to much risk holding the note for someone thats not got the resources to deal with getting the home back again , thats my opinion.
so far i know 3 friends who sold homes and 2 who sold businesses that way and all had the deals go bad. the two with the businesses were absolute horror stories as they both lost the franchise rights on the businesses they sold and held the notes on.
the worst move anyone can do is either be a landlord or hold notes on things if they havent got lots of resources to support things when deals go bad because eventually deals do.
as an investor and a landlord for most of my adult life i can can tell you some of my own horror stories
This is why I would insist on about three criteria for carrying back. Of course I'm in a fairly desirable area in So Cal so houses fetch higher prices and loans are harder to get. But I would:
1. ask 20-25% down
2. try to get a little higher than market price to compensate for my risk
3. 15-year mortgage at a little lower than going rate
4. to keep buyer from paying off early I would offer an incentive such as every 5 years knocking x number of dollars off balance
I would use a mortgage-servicing co. or bank to make sure payments were received on time, or to start foreclosure proceedings in the event of default. I'd use part of the down to fix up the home in the likely event of damage to house and just start over again. Hopefully have some down payment money left over for my troubles. One of the important things is to screen the applicants very carefully.
again all that makes good sense to someone who can afford to carry the property if things turned ugly. guaranteed if the person who sold the house because they needed money had to pay living expenses somewhere else and they had to foreclose they would probley end up loosing the house too for lack of funds.
all your criteria makes good sense except for someone without resources to carry them through... outright sale in this case is my vote and go buy an immeadiate annuity or long term treasury bond. that person has no margin for bad luck and errors
It's not just the possible default but having to deal with all that goes with putting the property back together again and re-selling......all of which we are facing right now.
20% down on full price isn't making up for the value loss in this declining market plus the re-do costs and legal fees.
The idea of selling at this age was to not have the care of a property any longer plus the income from the sale.
Whooooops.A year and a half older and we're back behind where we started.
Not suggested to hold paper unless it's an appreciating market and, as said above, you weren't depending on the money.
Besides,people that do reverse mortgages don't want to give up their homes and haven't the income to qualify for a loan.
For some, it's the answer.
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