Save with a ‘Re­verse for Pur­chase’

Home - Santa Fe Real Estate Guide - - SANTA FEREÁL THEREVERSEMORTGAGE - DIRK GRAY

“We want to re­tire, but if we do, we can’t af­ford to have hous­ing pay­ments. What’s a pos­si­ble so­lu­tion to our dilemma?”

Con­sider down­siz­ing: mov­ing into a smaller home with up­graded ap­pli­ances, ameni­ties that you’ll need as you age, and no prin­ci­pal and in­ter­est pay­ments, by uti­liz­ing a Re­verse Mort­gage for Pur­chase.

Say you’re 68 years old and your spouse is 69 years of age. The value of your home is $400,000, and your mort­gage balance is $150,000. You sell your cur­rent home and af­ter ex­penses (8 per­cent) you net $368,000. You pay off your mort­gage balance of $150,000 and have $218,000 to put to­ward your newhome.

Re­mem­ber, your ob­jec­tive is no prin­ci­pal and in­ter­est pay­ments. So, you can pay cash for a newhome­with a sales price of $218,000. You could also use the the $218,000 for a large down-pay­ment on a new home with a sale price of $300,000, and have small prin­ci­pal and in­ter­est pay­ments, but this does not meet your goal of full fi­nan­cial flex­i­bil­ity in re­tire­ment. Your third op­tion is us­ing a Re­verse Mort­gage for Pur­chase that is based on the value of the new home and the age of the youngest bor­rower in ti­tle.

Let’s re­viewwhat you qual­ify for. The new home has a pur­chase price of $400,000 and the youngest bor­rower on ti­tle is 68. The fac­tors we use to cal­cu­late your new re­verse mort­gage come from the U.S. Hous­ing & Ur­ban De­vel­op­ment Depart­ment (HUD). We mul­ti­ply the value of $400,000 times a fac­tor of 47.4 per­cent and your new mort­gage is $189,600. The fac­tors are stan­dard­ized na­tion­ally by HUD.

Your down pay­ment will be ap­prox­i­mately $210,000. With the new re­verse mort­gage, you’ll have no prin­ci­pal and in­ter­est pay­ments and you’ll con­tinue to make pay­ments for prop­erty tax and home­owner in­sur­ance. You will also main­tain the home.

The Re­verse for Pur­chase al­lows you to dou­ble your buy­ing power. Peo­ple who nor­mally will not qual­ify for con­ven­tional fi­nanc­ing may qual­ify for a re­verse mort­gage. Reg­u­lar mort­gage fi­nanc­ing re­quires that you meet ra­tios of in­come to hous­ing ex­pense, and in­come to to­tal debt. Re­verse mort­gages only look at a resid­ual in­come af­ter ex­penses.

An­other op­tion to con­sider is not us­ing your en­tire $218,000 that you net­ted from the sale of your home. If you found a home with a pur­chase price of $300,000, you could put $142,200 down. That leaves you $75,800 mi­nus other ex­penses. This also meets your ob­jec­tive of a new home, new ap­pli­ances, ameni­ties that will help you age in place, and, most im­por­tantly, no prin­ci­pal and in­ter­est pay­ment for the rest of your life. Sounds like a plan!

Dirk Gray is a re­verse-mort­gage spe­cial­ist with FrostMort­gage. He teaches for the New Mex­ico Real Es­tate Com­mis­sion, First Amer­i­can Ti­tle, and Santa Fe Com­mu­nity Col­lege. Con­tact him at 505-930-1953 or [email protected]­gage.com.

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