5 Critical Facts About Reverse Mortgages in 2024

Transcription

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Pete

So today we have Wayne Martin here from real estate one He's been a local real estate broker here for the last 20-something years. Yes, and we have been talking both me and Wayne about the seniors and here in Shasta County and What their options are if they're in a situation where they're they don't have enough refund or sorry enough funds or resources To fund their retirement, correct? And so we wanted to put this podcast together to talk about some of these Resources that they may have an options for and so today we want to talk about

Wayne

reverse mortgages Because you don't always have to sell to be able to you know Get access to to income basically or fix and repair And so we thought it would be really important to just kind of ask Questions that are fairly normal and give you some really good information And then you can decide if you'd like to talk to Pete about a reverse mortgage Yeah, definitely so how does a reverse mortgage work

Pete

So I just had a customer call me earlier today actually and asked me. Hey the same question. How does a reverse mortgage work?

So essentially it's a mortgage that you can get on your house and think of it like a mortgage The only difference is you don't make any payments on this mortgage instead of making payments The balance of that mortgage goes up every month and you don't make any payments the rest of your life So if you get one of these reverse mortgages, you don't ever have to make a payment for the rest of your entire life You know, there's a lot of questions that come up because it's like that's too good to be true What are the details and that's what we want to go over what those details are.

Wayne

So the first question would be who's eligible

Pete

Yeah, another great question so who is eligible is based on age so you have to be at least 62 years or older Okay, and so if you're married, then they're gonna use the lower of the two couples So if 164 and the other 161 you would still need both of you to be at least 62 years of age Before you can qualify for a reverse mortgage Yeah

Wayne

Alright, alright, so What does counseling involve?

Pete

Yes, so so the the reverse mortgage they call them they call it a heckum home equity line of credit Mortgage and what it is. It's a reverse. They call it a reverse mortgage the term for it.

They call also call it a heckum and It's FHA that provides this there's other Private lenders that do reverses for like jumbo, but primarily most every reverse mortgage is done by the FHA Administration and and so so there's lending limits up to a certain point Correct. That's right. Yeah, and right now I think it's a little over a million dollars for that as far as the value for a Heckum or for a reverse mortgage.

It's the value of the home is the limit not necessarily the loan amount So that's the value that's a limit not necessarily the loan amount so if you have a value of 1.3 Well, then we're gonna push the value of whatever that limit of the value is On a reverse mortgage they are expensive and what makes it so expensive is they call it mortgage insurance And so with a reverse mortgage because you're not making payments The balance does go up For FHA to continue to offer this to seniors They have to charge this private mortgage insurance premium and it can be over 3% of the loan amount as it gets charged and it gets added to the loan amount Okay, which is for sure that 3% and then plus any title escrow Appraisal fees So I would figure if you're looking at a reverse mortgage to be around five to six percent as far as cost now that is Expensive so that's why you want to weigh out the pros and cons if it makes sense to you. Yeah The borrower the senior still owns the property Okay, a lot of seniors a lot of people ask me.

Hey Pete, do we still own the property and the answer is yes You can still sell the property. You can still you could refinance out of that reverse mortgage You it's just like a regular loan. Just you're not making payments.

The balance is going up and so the other thing is too is if If you wanted to sell the home you could sell it. It's you can still put it in a trust Okay, and so the family can still get get the equity once you the borrower passes away Okay Say Somebody passes away now What do the heirs receive? Great question.

So let's say you have a reverse mortgage and you're a senior and You've passed away you put that home in a trust. I highly highly recommend having your home in a trust if If you don't I'm just gonna make sure we talk about that real quick If you don't have your home in a trust, I would say that would be your first step Before getting a reverse mortgage I mean you could still do a reverse mortgage But I would say using it because if you don't have a trust then you're letting the state decide who gets the equity of that home And so having a trust allows you to move it on to the next family member But your question was how what is the family member get if if the parents pass away?

Well, what they get is the home just like you would if they didn't have a reverse mortgage They get the home and it can be deeded into their name and if let's say you Give this home to let's say I'm the borrower and I pass away and I have a couple kids They're gonna get my house I can I can deed the home to them after I pass and according to the trust They'll get the home and then they can either sell the home. They could refinance the home They could do a number of any things to get to pay off that reverse mortgage

Wayne

Correct

Pete

Yeah, so so let's Correct yeah, let's say you let's say I had a reverse mortgage and I passed away and I wanted to give it to my kids They would have one year to pay off that reverse mortgage where they could sell the home if they want it and then take the Difference in equity if there was equity or they could get a new loan pay off the reverse mortgage if they wanted now I have seen it to where if it takes longer than a year Then then the family can ask for an extension from the reverse mortgage.

They'll give another one year extension Extension. Yeah on the reverse mortgage now one thing to make Very important on that trust if they don't have a trust you could easily spend a year in probate, right? And before that's any Before the chat the kids to get the home you could spend a whole year in probate And then you and then you have the ability to do sell the home or whatever.

So it's very important that you Have that home in a trust or you you know, you have that figured out, right? Right, so Yes, they can as long as the seniors are still living there Yeah, if the seniors is not living there you cannot use this mortgage as a rental property You have to it has to be primary residence. But yes, absolutely If I'm the senior I live there I could have my daughters live there family friends, you know, they could still live in the home Yeah, okay Absolutely, yes it can you can do a purchase reverse mortgage or you can do a refinance reverse more So I have a client right now.

He owns a home. It's worth about four hundred and fifty thousand He owes about two hundred thousand So he's gonna get about three hundred thousand dollars of equity and it's a bigger home and he doesn't like to do the maintenance He's in his 80s. He wants to downsize into a very more manageable home And so he's gonna take that three hundred thousand and he's gonna pay cash for a home but also get a reverse mortgage to where he Doesn't have a mortgage payment and it gets him a little bit of funds to help fund his retirement, okay What are the borrower's ongoing responsibility with a reverse mortgage Yeah, another great question.

So with The senior that the two biggest things they have to make sure they take care of is the property taxes and the insurance So it depends on the situation But most of the time the senior will have to pay their own taxes and their own insurance on the property And so if they don't pay that the lender still could foreclose So if you don't pay your insurance that reverse mortgage wants to make sure it's insured right case that burns down Right, and so if they don't pay the insurance that mortgage company would find that out Right, and then they would start the foreclosure proceedings because or or they would place forced insurance

Wayne

The first thing they do is put forced and correct. Yes, exactly Yeah, because they don't they don't want to be uncovered. That's for sure So we just covered all that what if the balance of the loan grows larger than the value of the home Great question.

Pete

So your question is Pete. What if you outlive the equity in the home? so so if I get a reverse mortgage and and I live until let's say I'm 90 and I owe 400,000 but the homes only worth 300,000, right?

It's your question Doesn't matter you can still continue on until you pass once you pass or once I passed Then that home can still go to the family members The family members are probably not going to want the home if there's negative equity And so the bank would then just take take the home take the home then now it's the bank's responsibility because his bank now That has a loan of 400,000, but it's only worth three.

Wayne

So it's it's the bank's responsibility Yeah, right Say the house needs repairs Can you get a reverse mortgage and get a lump sum to like put a roof on?

Pete

Absolutely.

Wayne

You can HVAC Yes. Yes, you can still get payments.

Pete

Absolutely. You can't you just got to make sure there's enough equity to cover all of that So how much they give you is all based on the age, okay There is one caveat. You need to make sure that the home doesn't have health and safety issues already, right?

so the bank will not lend to you on your home unless there's no health and safety issues if If the roof repair is noticeable and it's leaking They would want that fixed before they give give the loan Okay, yeah, but you can get over and above and you can use that money for anything Besides putting it in the market. You don't want to do that.

Wayne

Yeah So so say you had a repair like that you and you had all this equity you could probably get a line of credit To make that repair for health and safety. Yeah, and then and then get your reverse Strategy some of the contractors that we were work with will actually bill escrow They could do that to the multiple options if you have something like that Yeah, and that's why you'd want to talk to Pete and talk to me about You know different strategies about your house because we're here to serve. I mean, yeah, it's wonderful to you know Sell somebody's houses, but you know, we're really here to make sure that if that home is perfect for you Let's keep you in it as long as you can

Pete

Yeah the maximum that the FHA HECM or the reverse mortgage that will lend to you is all based on your age and the value of the home Okay, and so the think about this the older you are The least amount of years that though you'll have that loan which the least amount of equity They'll be eaten up by by that right?

So the younger you are the lower the loan amount they're willing to give you, right? So at 62, you know, it's you're probably gonna be right around 30% loan to value max that they would allow you to get up to But then it gets higher as you get older Okay One of the things that I've seen is people You know think about getting a reverse mortgage and they want to go on a trip.

Wayne

They want to spend their money on things other than living You know, is there a danger in you know, taking your reverse mortgage too soon?

Pete

Sometimes depends on the situation. Yeah, I would that's where that's where you know Council, I would say would come in and making sure you're making a good choice because you know if you're taking it too soon There may be other expenses that that come up later on Like having to you know, maybe maybe you need to go into a retirement facility or something Right, and you might need some of that equity right to move out of the home sell that home.

Does that make sense?

Wayne

Yeah. Yeah. Now if you tap out all the equity, you know, you say you use that 30% Yeah You could still live there, correct until you pass away.

Pete

Oh, yeah. Yeah. Yeah, they can't foreclose you They can't they will never foreclose insurance Is if you to pay the tax and insurance, they will never foreclose ever.

Yeah, you could live to 120 years old Wow, and you know with today's medicine, you know, I would say that's Yeah, yeah It could happen, you know, the average age has been getting more and more and right, you know, you could outlive for sure Right. My wife is is cleaning a home for someone that's just turned 99 and she's as smart as a button I mean, she's she's got, you know, all her faculties and it's very smart and she'll probably live to 105, you know Yeah, we see that more and more yeah But what's really great is this option if it works for you? Yeah, that's what's really good So so so Wayne here's a question for you, you know, the reverse mortgage is definitely an option But but what happens if the family or something, you know, you don't want to do what other options are there out there?

For for the seniors that want to downsize. Oh, you know that you don't want to right, you know What's out there that's available for them?

Wayne

Well, the thing about it is you can you know, obviously sell your home Yeah, um, that's one thing or you could rent it out get him, you know, if you can handle that and you had help Yeah, you could potentially rent it out and that could be additional income additional income and some tax write-offs although usually You know when you're older, you're not going to have that You're not going to be in a high tax bracket. Yeah makes sense but you know if you look at it and you go well, you know, I if I Get out from underneath this home like freddie and I we moved into a seniors community about six years ago We're considered young, you know, you move in it's like 55 and old.

Yeah, you know, yeah But what was great about it is the layout of the house We didn't have a bunch of stuff anymore. We didn't want it because it's just a pain in the neck to yeah Manage it take care of it and we just got rid of it asked the kids Do you want and they said no take it to the dump? Um You know, so it was really a nice transition.

So we sold our bigger house And it was a multi-stage process because we were on 10 acres big house custom blah blah blah Yeah, and then we moved in town had a little smaller house. It was still four bedroom, whatever but then we decided it was a stage where we went to uh, you know, um paris park here in town and 1450 square feet two bedroom two bath Great living space, you know bigger wider open great room kind of living. Yeah And um, although they have different floor plans, but it just worked out great.

Yeah, and um we love it that they mow the lawns and they yeah blow and trim and We've got a rec room and swimming pool, but we don't have to maintain it. That's so awesome so, you know, that's something that you could look forward to working into assisted living or Besides a seniors community you could go into assisted living for some people that's important and sometimes You just need to sell your house to move into a rental You know or yeah because with a friend

Pete

and that and I didn't think about that too because it makes sense because Now that landlord's taking care of you. You don't have anything you have to you know, mow the lawn the weeds nothing

Wayne

Depending upon your age and you know what you're about and sometimes, you know, you just need to tap into That equity that you've saved up and you may have children adult children taking care of you or grandkids Yeah, you know, so there's a lot of different options Yeah again, you know our goal is to be a resource and not just say you got to go one direction Yeah, because not every direction is the right direction, right? It's it's got to be custom tailored understood.

Yeah, and Some serious questions need to be asked. Yeah, you know from out from the outside looking in that has experience Yeah, it'll really help you make a great informed decision.

Pete

Yeah, and it's not just the senior that's it's also the family It's the kids it's the you know, everyone involved contributing to hey what what's going to happen right long term, right?

Wayne

Yeah, and not everybody's not all the adult children are You know interested in their parents honestly, you know, so that factors into it or they have a job that moves around, you know, they're You know, they're trying to work and yeah make a living and raise kids and get their kids in college and all this so You really need to have these good discussions and look at all the different options that you have That could potentially make sense. Yeah, you know, maybe you could buy a home And build an adu or buy a home that has an adu Where you could be in the adu and your family house out in front Yeah, or reverse that where you know

Pete

If you have enough money or have someone that's your caretaker live in the adu unit to help with the things

Wayne

Yeah, you know and if you're young enough like freddie and I got long-term care But we started when we were young so it was cheap, but you hit a certain age They won't sell it to you or it's so expensive.

It makes no no sense whatsoever. Yeah, so you could say it's your home And have care there or you know, if something really bad happened we move into a facility Yeah, so so someone someone what's that?

Pete

What's the latest someone could look into long-term care like i'm 44 You know, I really don't know so like could I look in or you could look could I look into it?

Wayne

Absolutely for long-term care. I would definitely check. Yeah, that's what i'm wondering Yeah, because we had the experience of my grandfather And grandmother didn't have long-term care and they ended up burning through all their money and then they moved in with my folks And um, it was just a difficult situation.

I mean everybody took care of the thing, but it's just hard on the family and like We looked at that and we just go oh we got to go check long-term care out. Yeah Because what it does is if you don't have it It could have you could burn all your money up all your savings all your savings your home equity.

Pete

Yeah Yeah, yeah, yeah and come out with zero and still that's it Yeah, i'm gonna look into that because not only for me but also for potential clients in my age.

Wayne

Absolutely. Yeah I you know paying insurance is like oh, man. I don't want to make that payment.

But when you look at the the economics of it Um, and what it does for you. It's it's something to look into. Yeah, definitely cool Anyway, yeah, so, you know, we hope that helped that isn't all the questions you May have may have but we're here as a resource.

Pete

Yeah, absolutely.

Wayne

Give us a call reach out Yeah, you know reach out to us we're happy to help and give you you know as much information as you can Possibly get send you in the right direction. Yep, you know, whatever that is for you.

Pete

Cool. Well, thank you. Wayne.

Thank you Yeah, I appreciate I think that's uh, really good