Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
I've been talking with an elderly homeownder who is house rich, but cash poor, and has fairly low income. He wants to stay in the home, but needs more cash for living expenses. He has good credit. What can he do to access home equity besides a reverse mortgage? HELOC? Cash out refi? Other options?
@Gary Abner I'll be blunt, they are not living a modest lifestyle if they are short $1500 a month. A modest lifestyle would be living on $1500 a month. While your dad may want to keep his motorhome if he still owes $75K on a 10 year old motorhome, he needs to either sell it or sell the house and move into the motorhome.
Your parents need to sit down and look at their finances to see where they can cut costs and what they can do to get more money (eg sell their home and downsize, get rid of the motorhome, do they have an in-law suite they can rent out). Historically by the time people are at retirement age, their primary residence is paid for and this allows them to live off less income than when they were working and had a mortgage.
Biggest HELOC available. While reverse mortgages are a cool concept I would avoid if possible because of astronomical fees.
I would learn as much as possible about reverse mortgages and all the costs because then weighing the alternatives would come from a more educated place. In the end, if a reverse mortgage best meets his needs then it might behoove the kids to chip in to avoid the fees and if not, it is ultimately their loss.
Bottom line if staying independent costs the kids some inheritance, good.
If he borrows, he will get what he qualifies for under any loan program.
Let's do a sale and long term lease back. Buy it at say 2 or 2.25 and work out the ROI for rents. The discount is for maintenance, taxes and insurance from the perspective to justify a lower price. Older folks like CDs, put 25K in a CD and pledge the CD for future rents in the purchase agreement, he gets the interest on the CD. Stagger the distribution to the cds so that amounts pay monthly or quarterly, this is to help pay rents if needed and if not needed simply roll over. Lien is released upon his death and/or end of paid tenancy.
He can take the cash, invest it and pay the lower rent. 200k should be a good supplement to his income to 100. :)
Hey guys this is my first post so thanks for having me! I am a reverse mortgage lender; one option for the client is the "SAVER" reverse mortgage; it eliminates the most expensive closing cost, the Up-front FHA insurance(2% of the home value). Also, if the lump sum option is taken the origination fee can be negotiated.
I'd be glad to answer anybody's questions about reverse mortgages, the fees associated, or anything else.
Thank you so much for this post I am helping my parents in a very similar situation. They are in their upper 70s, have good credit, motorhome debt ( ugh), they have been running a deficit and are out of savings. Their home is worth about $350k. They still run the small farm I grew up on and would like to maintain their modest lifestyle that runs a deficit of $1500/ month.
They have a 10 year old motorhome they owe $75,000 with a $700 a month payment. My dad hasn't used it in a few years but would like to keep it if he can.
@Gary Abner I'll be blunt, they are not living a modest lifestyle if they are short $1500 a month. A modest lifestyle would be living on $1500 a month. While your dad may want to keep his motorhome if he still owes $75K on a 10 year old motorhome, he needs to either sell it or sell the house and move into the motorhome.
Your parents need to sit down and look at their finances to see where they can cut costs and what they can do to get more money (eg sell their home and downsize, get rid of the motorhome, do they have an in-law suite they can rent out). Historically by the time people are at retirement age, their primary residence is paid for and this allows them to live off less income than when they were working and had a mortgage.
Release equity from the house through a refinance then buy two other properties where the rent covers the cost increase in the remortgage cash flow wise and leaves him with additional money to live off. You then own three houses appreciating instead of one and your father has some cash flow.
Could also try a 5 year lease option if he is willing to move out of the house and the house could rent for a higher value than your father would be happy to rent another property with. The house is leased to a property management company for a monthly amount higher than the mortgage payment and they manage the tenants and repairs. Your father then moves in to a smaller flat with the money and has some money left over for living expense cash flow wise. Just have to see if the numbers work, you can google search "lease option for property".