Reverse mortgage credit line secures funds for major projects

Mortgage broker: John Holmgren, Holmgren & Associates.

Property type: Single-family home in Palo Alto.

Property value: $2.425 million.

Loan type: HomeSafe Jumbo Adjustable Rate.

Credit line amount: $911,604

APR: 10.469%

Backstory: My client, age 81, owns a home in Palo Alto that, while very valuable because of the area, had substantial deferred maintenance.

While not ready to move in the immediate term, she wanted to bring her home up to neighborhood standards so that it will sell for a higher price (likely in the $3 to 4 million range) when that time occurs. At the same time she also owned a home in West Hampton, NY, where she used to live. That property, now vacant, also had substantial deferred maintenance.

She was looking for substantial funds for both of these projects; plus, with limited income from Social Security and withdrawals from a dwindling IRA, she wanted to retire her Palo Alto property mortgage. Her income was not sufficient to qualify for a HELOC or traditional refi,

“An FHA HECM (home equity conversion mortgage), while the most popular product for most homeowners, would not work in this case because the maximum home value for FHA loans is $1,089,300, a figure that works for many homeowners but not for someone who needs access to a lot of money. This is because reverse mortgage qualification software limits accessible funds to 40-50% of the property value.”

so her son, who was helping her to navigate her options, contacted me to help evaluate reverse mortgage options.

An FHA HECM (home equity conversion mortgage), while the most popular product for most homeowners, would not work in this case because the maximum home value for FHA loans is $1,089,300, a figure that works for many homeowners but not for someone who needs access to a lot of money. This is because reverse mortgage qualification software limits accessible funds to 4050% of the property value. In this client’s case, 50% of the FHA limit minus the payoff of her traditional mortgage would have yielded very limited usable funds.

Based on her age and home value, we were able to arrange a Home Safe jumbo reverse mortgage credit line that was enough to pay off her existing loan and to provide a credit line of over $900,000, a figure that she believes will be sufficient for both home renovation projects.

In this case, a reverse mortgage provided immediate cash flow relief while also providing the foundation for enhanced wealth for her and her family.