SCENARIOS
As with any mortgage, there can be many different scenarios that are unique to the specific borrower, or the property. With a reverse Mortgage, there are many ‘workarounds” that could help us to qualify a borrower who would not be able to qualify in a conventional lending scenario. These are just a few scenarios to help provide you with an idea as to how these loans might work.
REVERSE MORTGAGE SCENARIO EXAMPLE #1*
HECM Refinance
John & Betty Bosworth
John’s DOB: 02/22/1947 – Age 79, Social Security Income: $1,322
Betty’s DOB: 06/17/1949 - Age 74, Social Security income: $1,230
Home Value - $450,000
Home Equity - $360,000
Approximate Mortgage Balance - $90,000, Monthly Payment: $1,222
The Situation
John and Betty, both retired, are barely getting by after making their monthly mortgage payment – which does not include their property taxes and insurance, that totals another $330, and very little in their savings. They are concerned that they won’t be able to continue to remain in the home should something happen to one of them, thus eliminating that social security income. They still have 12 more years left on their current mortgage. is having trouble making payments and meeting expenses.
They are hoping that a Reverse Mortgage can provide them with a solution, and provide them with some breathing room, long-term security, AND some additional money freed up to enjoy their life a little more.
The Solution:
Using Betty’s age, since she is the youngest qualifying borrower, hey qualified for a Reverse Mortgage totaling $180,000. They pay off the existing mortgage – this freeing up $1,222 monthly for them. Additionally, they have $75,000 remaining for them, of which $28,000 is immediately available to them, either as a lump sum or line of credit, with the remaining $47,000 set up in a line of credit – that will earn interest equal to the amount of the interest rate, and which will be available to them, tax free, beginning after one year has passed.
Net Result: Their monthly available income went from $1,000 (the money they had after paying their mortgage payment ($1222) and monthly taxes and insurance ($330), to now having the $2,252 to live on while never having to worry about making another mortgage payment as long as they remain in the home.
REVERSE MORTGAGE SCENARIO EXAMPLE #2*
Reverse For Purchase Transaction
Barbara Jenkins, age 82; widowed, Annuity income of $3200 monthly
Home Value - $575,000
Home Equity - $575,000
The Situation:
Barbara has been widowed for the past two years and it is getting increasingly more difficult for her to go up and down the stairs of her 2-story home. Additionally, her daughter and grandchildren live across town, and she doesn’t like to drive that far. Her daughter is concerned about her and would like her to move closer, which Barbara would also like to do.
The Solution:
Barbara decides to sell her home and purchase a new one using a reverse mortgage. After paying sales commissions and closing costs, Barbara clears $540,000. She finds a nice, 2-bedroom home only minutes from her daughter that is listed for $450,000.
Barbara’s full-price offer is accepted, and she moves forward with a reverse for purchase loan. Her required down payment is $248,550 and her loan amount – which will require no monthly out of pocket payments – is $216,450. She also decides to set up a Loan Equity Set Aside (referred to as a LESA), which is similar to an impound account, that will cover her home insurance and property tax payments until the age of 95, even though she is not required to do so. This means that along with not having to make her monthly mortgage payment, she also won’t have to make the property tax and insurance payments as well.
The LESA collects $31,250 at closing, meaning after her down payment, closing costs and LESA, she is left with $250,200 to be placed into a savings account, or use some to establish a tax-free line of credit with guaranteed growth of the unused portion.
Barbara also decided to take $20,000 to treat herself, her daughter, son-in-law, her two grandchildren, and their families on a weeklong once-in-a-lifetime one-week Disney cruise to the Caribbean!
Life is good!
*Due to fluctuations in the markets and rates, numbers used in the above scenarios, though accurate based on the rates this was created on 07/11/2023, are also subject to change. Actual totals will vary based on the following key factors: Age of the youngest borrower, appraised value of the home, current interest rate, and loan program selected.
