Investor · Los Angeles, CA · Member since 2015 · 63 posts · 10 votes
Ok trying to help a friend.
Might do a reverse Mortgage and spot the input needed on his behalf.
(The calculator per the underwriter shows an input needed).
My question is at the end of the seniors life, how do they come up with the loan amount that has to be paid off..
Can I arrange it so in return he names me as beneficiary (he is no heirs) and will I be able to pay off the loan (and at what level?) to purchase the house?
Or will I have to pay the bank the market price of the house?
Surely I just would have to pay back the loan.
If so, how does it work?
Do I have to pay back the number the bank comes up with NOW as we get the loan, or is it a future amount adding interest???
Ie: does the loan PAYOFF amount keep increasing over time?
Investor · Miami Beach, FL · Member since 2016 · 486 posts · 216 votes
9y
the idea of reverse mortgage is that borrower doesn't have to pay anything to the bank during the term of the loan. So obviously the payoff will increase over time depending on the terms of the loan and draw period and amounts that are drawn. It's a piggy bank loan. Lender is only the lien holder. Whoever is the beneficiary has the right to payoff the loan and keep the property or the bank will foreclose. You can become a heir via last will or a revocable trust or irrevocable trust where you will be a beneficiary. You will need an attorney draft or you can get one of the boiler plated forms. If you are choosing a trust as way of getting property then the title will need to be transferred to the trust.
Best to have the lawyer prepare all docs to avoid any issues.
some key takeaways: There are fees and other costs to originate the loan that get added to the balance borrowed. You owe more over time (interest gets added to the balance each month and your total amount owed grows and compounds). Interest rates may also change over time (most are variable). They might also require a set aside amount that is held to pay tax and insurance during the life of the loan. You can choose to pay off the loan at any time but it will be the future amount with interest that has compounded over the years and will not exceed the then (future) appraised value of the home. It will likely be closer to market price if the owner has taken out most of the equity from the property over the duration of the reverse mortgage. Not much value for you unless you want to keep the house in the family and have the money to payoff in full.
Yes, any one can be listed as a beneficiary to the property, but conventional RMs can give inheritors a lot of problems when transferring title. So I recommend the HECM Loan. Which is a FHA insured RM. It protects the lender from the borrower defaulting, and protect the borrower from ever losing the home. With the HECM loan, it is nearly impossible for anyone to take the home away from you.
So with a RM your interest and principle payments add up each month, and become the principle amount due at the time of payment. With a normal RM, sometimes, if the value of the loan exceeds the market value of the home, the bank might have the right to seise the home after the passing of the owner. HECM keeps that from happening. But yes the full amount is due after the owner passes, not any predetermined number. Normal RM gives you 2 months to pay back the loan in full, but HECM gives you a whole year to refinance the loan, pay it back in full, or sell the home, it's up to you. With HECM if the loan exceeds 95% of the homes value, you can get the home back with 5% down, but that almost never happens. But, it's just some extra info to help. Let me know if I can answer anything else for you.
Almost all brokers and lenders provide the HECM loan. Make sure to check with whoever your working with, and try to stay local, it's worth it. :)
Investor · Los Angeles, CA · Member since 2015 · 63 posts · 10 votes
9y
Noor Gill thank you so much!
The HeCM is the one we were talking about. Just to be clear is the base loan amount the AVM? Then it increases from there?
Thx everyone for your input.
Invaluable. I love Bigger Pockets! ;)
Pleasanton, CA · Member since 2017 · 8 posts · 2 votes
9y
@Vanessa Ryder Your AVM is just a list of projections of your home's value, and a set structure of how your loan balance will increase over time. Your base loan includes the pay off of your current mortgage, fees to handle the loan process, as well as any cash out or line of credits you may receive. I have some friends at Senior Advantage Association. They work exclusively in CA, and only do the HECM Loan. I highly recommend reaching out to them, being that they are experts in this field. They will meet with clients in person and over the phone, even if it's just to help you learn more. They have offices in NorCal and SoCal. Just tell them I sent you, and I'm sure they will help you better than anyone else :) Let me know if you have anymore questions.
Investor · Los Angeles, CA · Member since 2015 · 63 posts · 10 votes
9y
Thank you @Noor Gill so much! Will def check it out.. oK so the base (principal) starts pretty much at the current outstanding loan value, not the AVM or the number they use to calculate whether there is equity. That's a big difference in his case he owes $300, AVM $570. So the loan would increase from $300 plus fees, not from $575 I think you are saying.. which is a pretty big difference!! Do I have it right? Either way thank you for the referral will help it out!! Much appreciated!
Pleasanton, CA · Member since 2017 · 8 posts · 2 votes
9y
Yes, so your base loan will be 300k, and in the end will be the 300k, plus fees (which are just put into the loan, so that you don't need to come out of pocket), and any cash out and line of credit you may receive, depending on how much equity is left in the home.