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Reverse mortgage eligibility

Posted by redcurls (My Page) on
Tue, Nov 2, 10 at 0:14

If you (and spouse, both over 65) only live in Home #1 HALF the time and spend the other half in Home #2 in another state..is Home #1 eligible for a Reverse Mortgage? I can't seem to find that information...
Thank you.


Follow-Up Postings:

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RE: Reverse mortgage eligibility

Just call the bank and ask them.


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RE: Reverse mortgage eligibility

If you have 2 homes with significant equity, a reverse mortgage probably isn't for you anyway.


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RE: Reverse mortgage eligibility

Hi redcurls,

If you (and spouse, both over 65) only live in Home #1 HALF the time and spend the other half in Home #2 in another state..is Home #1 eligible for a Reverse Mortgage?

Sure. The home you hold as your official primary residence is financable via a HUD-insured reverse mortgage.

NOW... once reverse-mortgaged, it must remain your primary residence. If you vacate it as such, you (or your heirs) then have 12 months to pay off the reverse, either via refi or sale.

Since you've provided little additional details, certainly not enough to determine if this is appropriate or not, I'll pass on making judgmental presumptions ;~)

Hope that is helpful!
Dave Donhoff
Leverage Planner


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RE: Reverse mortgage eligibility

Only Home #1 has significant equity. The second one is a condo (paid for) in Florida which would bring very little under the current conditions down there. A little extra income would be a good thing and allow for some traveling, etc. The whole purpose of the reverse mortgages, it seems to me, is to enable a person to keep from selling a home they love and still afford travel etc. on a limited budget. From what I understand, to even APPLY for a reverse mortgage, you have to pay $125 for counseling and get a certificate that authorizes you to apply. Don't want to pay $125 and then find out that the property is not eligible.


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RE: Reverse mortgage eligibility

"The whole purpose of the reverse mortgages, it seems to me, is to enable a person to keep from selling a home they love and still afford travel etc. on a limited budget."

Hmmmm..

I thought the purpose was to let the elderly live in their home that they may no longer be able to afford.
I don't think enabling travel has anything to do with it!


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RE: Reverse mortgage eligibility

Well, in my mother's case, a reverse mortgage has allowed her to stay in her home (which was my grandmother's) AND enjoy life more, including travel.


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RE: Reverse mortgage eligibility

Reverse mortgage terms of qualification is firmly established.

"Purpose" is strictly marketing spin, in my opinion.

The plain & simple reality is that anyone 62 years old & older can get financing insured by HUD on a reverse-mortgage basis (which, in essence, is designed as an immediate annuity for the purpose of paying the nominated interest rate for the borrower for the duration of their stay in the home as a primary residence.)

That is a "tool" which can be used many ways. Clearly the most basic & obvious way is for allowing a senior with accumulated capital and/or equity to eliminate the cashflow burden of mortgage payments, on a permanently guaranteed basis, and still remain in residency in the home.

With life expectancies stretching today from 85 upwards, and careers voluntarily stretching into our 70's (often by choice, not requirement,) a reverse mortgage can clearly do many more things than just the obvious.

Cheers,
Dave Donhoff
Leverage Planner


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RE: Reverse mortgage eligibility

I think you want to go very carefully here. RM's sound like a great idea, but there are definite down sides to them depending on your individual situation and your bank, location, etc. I would absolutely get objective advice from a few pro's and make very sure you have all the facts before committing to this.


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RE: Reverse mortgage eligibility

When my mother in law was in her 80s I thought a reverse mortgage would have been a great thing for her - it would have freed up some money that would have made her lifestyle more comfortable. My perspective has changed drastically as she is now in her 90s. The equity in her home (that was never drained w/ a reverse mortgage) was what allowed her to have enough money to buy into a lovely continuing care retirement community. Although everyone seems to believe that seniors can and should stay in their homes, she was very isolated in her big home. She has had 2 1/2 great years in the retirement community and is much happier and engaged than she had been in her house. I would be wary of draining equity out of a home to finance a lifestyle. People are living longer and you may want those funds to ensure a more comfortable situation in your truly old age.


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RE: Reverse mortgage eligibility

Thank you all for your replies. I believe we are going to arrange for the mandatory counseling and apply. I have taken many of your thoughts into consideration. I question why someone would think I should not use the equity in my house for recreational purposes as if this were some kind of "cheating the government" or something. This is a home we have sunk any spare money we've had over the past 38 years by keeping it pristine and up to date. Why should we NOT treat it as an asset and use our equity to enjoy travel etc.? Our four "kids" are all well-off thanks to us footing their college bills many years ago, we have excellent health care which we pay for, we have nursing home insurance, and a vacation home. We are just finding ourselves house-poor lately with our condominium maintenance and assessments in Florida (because of foreclosures!) and just the general cost of living. Even traveling has become much more expensive! And, yes, we sometimes spend too much on the grandkids and just daily living now that we're retired.

My only concern is that the condo might be considered our primary residence because we lived and filed taxes there for the past two years, as well as obtained drivers licenses there. (We did not rent this house out....we lived here for about 5 months of each year.) This year we came back to living most of time in the house and have once again obtained drivers licenses here. We came back because of a non-life-threatening health issue - our doctors are here. We intend to keep the condo to use for about 3 months of every year.

When I called someone to start asking questions, the first thing they wanted to do was get my name, address, etc....basically "start a file"....I just wanted to ask a question first before going down that road. Thank you all for your help. If anyone has anything to add, I'll keep watching....


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RE: Reverse mortgage eligibility

redcurls ... you can use your equity from a reverse mortgage for whatever you desire. Many people think a reverse mortgage is only for the desperate and destitute, and that's incorrect.

Your lender will look at your occupancy closely; drivers license, tax returns, where bills are sent. Many people decide to change their residency for tax reasons and then want to change it back for a reverse mortgage .. that's not acceptable.

You are required to spend a minimum of 183 days a year in your "principal" residence, to be able to do a reverse mortgage on it.


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RE: Reverse mortgage eligibility

Just be careful of the terms. My mother took out a reverse mortgage from a local bank that she trusted, but which had horrendous terms that she didn't quite understand. She died this year and her estate has to pay back $900,000 on the less than $200,000 she borrowed in total over a dozen years - plus half the value of her house !!!!! So, the bank will get a fortune, and the money from the equity in her house that she thought she was leaving to her children all goes to that bank - which is trying to grab the house right now, before I can even sell it.


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RE: Reverse mortgage eligibility

sunnyflies: sounds like usury, which is, of course, illegal. What is the maximum rate of interest that can be charged in the state where this happened?


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RE: Reverse mortgage eligibility

To sunnyflies comments;
If Mom's estate paid back $900K, plus the $200k principal... and that equaled only half of the value of her home... she passed with a home worth $2.2 Million, which is better to the heirs than a poke with a hot poker... but there's more to the story, I assume.

Reverse mortgages were regulated & standardized in Reagan's terms, over 20 years ago. If Momma-Sunnyflies got a reverse 12 years ago, it is both impossible to now owe more than the home is worth, and/or impossible to have accrued $900,000 of interest on a $200,000 draw in that dozen years.

To ottawavalleygardener's question;
The highest interest rate on reverses over the last 12 years has been the low 8%s (believe it or not, 30 FRMs were in the mid 7%s just that recently as well,) and of the $200,000 draw didn't climb to $200,000. but actually started at that amount, the total interest at (let's be silly-high) 8.875%, over 12 years, would be an additional $213,000. It is most likely somewhat less than that.

Reverse mortgages can actually be outstanding deals for the right person, and the interest rates really aren't much higher (if at all) over the current going market rate for a 30 FRM. Most all of the negativity is latent dogma from folks carrying forward stories from pre-Reagan days.

Cheers,
Dave Donhoff
Leverage Planner


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RE: Reverse mortgage eligibility

So, the bank will get a fortune, and the money from the equity in her house that she thought she was leaving to her children

If one takes out a reverse mortgage they should be made aware that they will likely not be leaving their heirs much home equity at all. My mother took out a reverse a few years ago, and I am more than happy that she is able to enjoy her life and live in her comfortable home. I expect nothing from her estate when she passes; knowing that she is comfortable and able to enjoy her life is enough for me.


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RE: Reverse mortgage eligibility

FHA reverse mortgages used to have an optional equity share provision. The basis was that the borrower would get more money up front, but would share in the equity they built up over the long run, with the Lender and FHA.

That option was eliminated when stories like the $900,000 payback on a $200,000 draw first started coming out years ago. There also were some private reverse mortgages with that same option.


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