What about the Costs?

I am often told that the costs of a reverse mortgage are  often what discourage a senior from moving forward with the loan. It is true that the costs are often higher than doing a traditional “forward” loan. But many people don’t understand that it is only true for the FHA reverse mortgages. Granted, people like that FHA stands behind the loan, but there are other options.

I just visited a client last week that is interested in doing a reverse mortgage. The reason . . .  to modernize her home. Now she is looking at needing somewhere around $15k to do the projects. An FHA reverse mortgage (Home Equity Conversion Mortgage or HECM) would cost her roughly $12k. In my mind this doesn’t make sense. To pay $12k in order to get $15k is not a smart move.

However, as I said, there are other options. Most lenders today have proprietary products. These products are usually used for jumbo loans, those homes that exceed the lending limit in their county. Truthfully, they really are mostly used for the $500+ value properties. There are no lending limits on most of these products. These programs require much less closing costs than the HECM’s do, many times over half. The down side to these types of loans is that they lend less (as a percentage) than the HECM’s do. But, for a lot of people, like my example above, they only would like to have roughly $15k available.

These proprietary products are typically Non-recourse loans (very important). This means that the property is the only security for the loan itself. No other assets are required to pay off the mortgage, including no resources from other family members, etc.

For my clients, they will improve their property by modernizing their kitchen, bathrooms and new flooring. By doing this they will increase the value of their property, and likely get much of the costs back in 5-6 years when they may consider selling.

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