Strategy when buying a house with a reverse mortgage

[Chace Dietrich]

Hello all,

I have a line on a property in San Antonio. It has a reverse mortgage on it (approximately $120,000). I have been speaking with one of the heirs and they are looking to get rid of it. 

My question is, what would be the best strategy? I don't know much about reverse mortgages and if there are specific strategies when buying real estate that has one on it.

My thoughts:

-If they can make payments on the reverse mortgage (they told me they only offer buyouts to the heirs), a seller financed option might work.

-I could just get the cash to the heir, then do a double close situation and get the property that way.

Any help is greatly appreciated.

[Wale Lawal]

@Chace Dietrich

While borrowing against your home equity can free up cash for living expenses, the mortgage insurance premium and origination and servicing fees can add up. Here are the advantages and disadvantages of a reverse mortgage.

Pros

• Borrower doesn’t need to make monthly payments toward their loan balance
• Proceeds can be used for living and healthcare expenses, debt repayment and other bills
• Funds can help borrowers enjoy their retirement
• Non-borrowing spouses not listed on the mortgage can remain in the home after the borrower dies
• Borrowers facing foreclosure can use a reverse mortgage to pay off the existing mortgage, potentially stopping the foreclosure

Cons

• Borrower must maintain the house and pay property taxes and homeowners insurance
• Forces you to borrow against the equity in your home, which could be a key source of retirement funds
• Fees and other closing costs can be high and will lower the amount of cash that is available

Here is a detailed blog on, Everything you need to know about reverse mortgages. https://www.bankrate.com/mortg...

All the best!

[Chace Dietrich]

I may not have been clear. The house I’m wanting to purchase has a reverse mortgage. I would like to buy it at a discount obviously, so is there a strategy that works best in this scenario?

[Chris Seveney]

@Chace Dietrich

They cannot owner finance it they must pay it off if the borrower is deceased. Just buy it like any other transaction.

[Chace Dietrich]

Can I pay the buyout (the $120k) and have the heir forward the deed to me? I think the house is worth at least $200k. 

[Chris Seveney]

@Chace Dietrich

If they accept $120k and it pays it off sure - but do they have the authorization to transfer the property? Did it go through probate? If not then they can’t do anything until it goes through probate

[Wayne Brooks]

@Chace Dietrich The pay off is the balance owed…it has to be paid off as the loan is due within 1 year of the borrower dying or moving out. It doesn’t matter who/how it is paid off.

[David M.]

Quote from @Chace Dietrich:

Can I pay the buyout (the $120k) and have the heir forward the deed to me? I think the house is worth at least $200k. 

 Well...  that's one to do it (assuming the reverse mortgage company accepts the payout, probate is handled, etc...).  However, this is why we closings that are done in escrow...  Think of a traditional purchase:  the buyer does NOT pay off the seller's existing loan and then the seller hands over a deed.  What if after you pay off the loan the seller never hands over the executed deed?  The mechanics of this would be done by a Closing Agent as part of closing in escrow.

Anyway, I don't know much about reverse mortgages, but your best bet is to have the heirs find out the exact terms of this particular reverse mortgage.  Also, make sure this has cleared probate.  Good luck.