A friend of mine inherited her family home when her father passed. There is a reverse mortgage balance of $116,000. The home is in a desirable area and in average condition, currently worth approximately $240,000. She has been with the same employer for many years but has a meager income. Her credit is underutilized, maybe in the 600 range. What is her best option to pay off the reverse? She has quite a bit of equity in the home but is that enough to get financed? I don’t want to see her get hard money if she doesn’t have to go that route.
I have agreed to “hold her hand” so to speak through this process. I’d prefer not to waste time and effort jumping through hoops trying to get her financed if it’s not going to happen. I’m guessing there are some experienced people here on bigger pockets with some advice? Thank you I’m advance for any suggestions.
P.S. The home is in Fircrest, WA if anyone local is out there!
She will need to pay off the reverse mortgage within 1 year if the relative’s passing.
Obviously, she’ll need to qualify for a loan.
The other option would be to sell it.
Hard money lenders tend not to lend on personal property.
She can get an FHA loan with a 580 credit score. This would be strictly owner occupied. She can get a Fannie Mae or Freddie Mac loan with a 620 credit score. Typically its not hard and doesn't take long to increase your score by 20 points, but wont know until you see the picture on the credit.
She can do 85% cash out on the FHA, or 75% cash out on the Fannie / Freddie loan. Or she can do 97% rate and term refinance on the FHA loan or 95% rate and term (no cash beyond $2000 over and above the payoff and closing costs) on the Fannie / Freddie loan.
What does she want to do with the property? Live in it? Sell it as is? Fix it up then sell it? The simplest thing to do is sell it as-is. She won't have taxes because of the stepped up basis on inherited property, so she would pocket the entire selling price, after costs and paying off the mortgage.
If it needs work, can she borrow enough money to get it fixed up and sold? I'd caution against doing too much work. Paint and flooring will go a long way. Trying to do a full rehab with no experience and little cash can make matters worse.
What are the terms of the mortgage? Does she have time to do something or is there a short fuse? If this were an ordinary mortgage, she could just make the payments and keep the property. The due on sale (transfer) clause is not applicable for an inherited property with a mortgage. But reverse mortgages sometimes have other terms.
If she's planning on living there hard money is not an option. If she just needs some time and it needs extensive repairs, it might be. Honestly, though, I'd sell it as is rather than trying to do a rehab, if its in poor condition. Way less risk.
Does she live there now or want to keep the property to move in (and ditch her rental?) or keep it for investment/rental income? She needs to have a clear why on the long term.
If she won't/can't commit to the ownership, upkeep expenses and/or landlording tasks... basically if there is no driving force in wanting to keep it then probably best to sell and invest the receipts elsewhere.