Case #2 - Buying a second retirement home
While farming you get to know a retired couple that would like to purchase a second retirement home to have more fun with their kids and grandchildren. They are looking at two areas - one area is a $180k FHA approved condo in Palm Springs. The other home they are considering is a cabin in Big Bear that sells for $240k. They don't want to create a new monthly payment for the rest of their lives. They own their current home outright (no existing mortgage loan or other liens to be paid off). The wife is the younger of the two and she is sixty six years old. They estimate and you confirm the market value of their primary home to be around $600,000.
Solution:
You contact your trusted Reverse Mortgage specialist who shares the following Reverse Mortgage Refinance information::
Based on the wife's age and a $600k appraised value, the couple qualifies for a total of $323,493 from the Reverse Mortgage Refinance. However, FHA guidelines require that $131,760 be delayed as a Line of Credit not accessible by your clients for the first 12 months after the loan closes. That means your clients have $191,760 available at close and the remaining $131,760 set up as a line of credit (and earning a 5.194% growth rate) a year later. Knowing this you share the following options with your clients:
Option 1
Since they qualify for $191k at the close of the loan, they could purchase the $180k Palm Springs condo with the Reverse Mortgage Refi and have an additional $11k ($191k - $180K) LOC usable for any reason during the first 12 months of the loan. The condo must be FHA approved which you can determine by visiting the HUD website and providing the name of the community in the FHA approval section. On the first day following the 12 month initial period, the clients would have a total LOC of around $143k ($11k extra at close plus $132k available after 12 months) that they can use for any reason or leave alone and let grow over time as a safety net for retirement.
Option 2
If your clients have their hearts set on the Big Bear cabin, they can use the initial Reverse Mortgage Refi amount of $191k as a down payment and obtain a $49k loan for the balance. While $49k may be too small of an amount for many lenders, credit unions often provide these smaller balance loans. In one year when the $131k becomes available from the Reverse Refi, your clients can pay off the $49k mini loan and achieve their goal of enjoying a second retirement home without a long term monthly mortgage obligation.
