is a reverse mortgage the answer?

[luckydriver]

friend is disabled , has 2 kids and lives with mom. home is definitely worth 200K, probably more. next door sold for 260 last month. i'm unsure exactly what kind of loan for 120K  they have on the house now but friend tells me it's in moms name only. and they only have to pay the interest and none of the principal so thats what they've done because they have no extra money. taxes are not escrowed. i dont know more about the financing (interest/terms etc) but i  know they do not have the income to support what they need to do with the kids and daily expenses and need money from somewhere. 

 

ideally they wanted to have friend refi into her name so home is in her name only since her mom is old, but friend just has 1800 a month income. if my math is right a 30 year mortgage would be 600ish P/I. i know is a silly question but is it ok to sell your house to your daughter for less than market value then get the cash out? i cant see why not. and while i dont think they would demand escrow for the taxes, they would want to make sure her income supports it and obviously it does not. tax and insurance is at least 400 a month. which is well over 50% on the back end. 

 

so assuming my math is right above and daughter cannot buy the house herself. we are left with mom and daughter together. i believe moms SS is 1200 a month. so they have 3000. i'm pretty sure that supports paying the 120K mortgage mathematically but they need extra cash too. from all ive read reverse mortgage is very expensive to get and its a last resort but thats where they are. at a last resort. 

 

but then i read from a source that you have to be 62 so that would disqualify the daughter from being on the mortgage. so it seems like we are back to square one if thats true.

 

i know this is incomplete data but based on discussion so far any suggestions on types of loans they could get on the house? 

 

---------

i didnt want to complicate the issue but its also in the will that the other daughter gets half of of the value of the pre addition of the house. a few years ago before the house had a 2nd floor put on, an appraisal was done. and that value is in the will and the other kid gets half that value upon death. so it's a mess. 

 

 

 

 

[centex]

Let THEM deal with the sorting out of things financial...nothing screws up friendships more than mixing finances and friendship.  AND, when things go bad and they lose the house, do you REALLY want to be the one they blame for the loss of the house? 

 

If they are that worried about financial matters, then they will eventually go and speak to a financial expert, whether at the bank or other location.

 

This is seriously one of those things to just back away from and then run like hell...

[cv91915]

2 hours ago, luckydriver said:

friend is disabled , has 2 kids and lives with mom. home is definitely worth 200K, probably more. next door sold for 260 last month. i'm unsure exactly what kind of loan for 120K  they have on the house now but friend tells me it's in moms name only. and they only have to pay the interest and none of the principal so thats what they've done because they have no extra money. taxes are not escrowed. i dont know more about the financing (interest/terms etc) but i  know they do not have the income to support what they need to do with the kids and daily expenses and need money from somewhere. 

 

ideally they wanted to have friend refi into her name so home is in her name only since her mom is old, but friend just has 1800 a month income. if my math is right a 30 year mortgage would be 600ish P/I. i know is a silly question but is it ok to sell your house to your daughter for less than market value then get the cash out? i cant see why not. There could be tax consequences  and while i dont think they would demand escrow for the taxes, they would want to make sure her income supports it and obviously it does not. tax and insurance is at least 400 a month. which is well over 50% on the back end. 

 

so assuming my math is right above and daughter cannot buy the house herself. we are left with mom and daughter together. i believe moms SS is 1200 a month. so they have 3000. i'm pretty sure that supports paying the 120K mortgage mathematically but they need extra cash too. from all ive read reverse mortgage is very expensive to get and its a last resort but thats where they are. at a last resort. 

 

but then i read from a source that you have to be 62 so that would disqualify the daughter from being on the mortgage. so it seems like we are back to square one if thats true.

 

i know this is incomplete data but based on discussion so far any suggestions on types of loans they could get on the house? 

 

---------

i didnt want to complicate the issue but its also in the will that the other daughter gets half of of the value of the pre addition of the house. a few years ago before the house had a 2nd floor put on, an appraisal was done. and that value is in the will and the other kid gets half that value upon death. so it's a mess. 

 

Wills are easy to change.

They could also sell the house and rent a much smaller place.  But...

 

With that said, if they've been paying interest only on a mortgage it's a relatively safe bet they're doing other ill-advised things with their money.  I wouldn't assume that it's time to do anything too extreme unless they've truly exhausted every other option.  

Edited September 14, 2018 by cv91915

[luckydriver]

they are paying 14% surrender fee on an annuity because they are a month behind on bills so yes its down to the last option. 

 

there are no other monies to rob from. she specifically asked me for help on the mortgage and only other option i see is reverse so they will have to talk to a broker about that if they are interested. 

 

 

[tiggerlgh]

Does the daughter want to live in the home once her mother is gone? If so I do not recommend a reverse mortgage.

[hegemony]

everyone I know who looked into a RM figured out that they are a terrible idea for 99% of consumers.

[luckydriver]

21 hours ago, tiggerlgh said:

Does the daughter want to live in the home once her mother is gone? If so I do not recommend a reverse mortgage.

 

theres a 100K life insurance policy to help out with that plan. they literally have no other assets to work from. 

[mk_378]

As CV hinted at, they have too much house for their income.  That is not a sustainable situation.  They need to move.

[tiggerlgh]

 
theres a 100K life insurance policy to help out with that plan. they literally have no other assets to work from. 

That won’t be enough. And if the mom goes into the nursing home they will call the loan then. No life insurance and the loan will be due.


Best idea is to sell and use the equity to get a place they can afford.

[monacho]

Lucky:  I don't think you mentioned how old mom is in this scenario.

 

If she's 80 years old AND the house appraises for $240,000 then she would not be able to clear enough to pay off her $120,000 mortgage.

 

If she's 85 then after paying all the closing costs (costs are generally high on Reverse Mortgages) she would be able to get access to about $126,000 which would let her pay off the mortgage and put a few thousand dollars in pocket.

 

If they have made any insurance or tax payments late over the past 24 months then she will not be able to get even this much because they will force her to set aside money for paying taxes and insurance.  Likewise if her credit shows an unwillingness to meet her obligations.

 

Everything you have told me makes it appear to me that this is not a good solution for her.  This is a good tool for the right person, but it is a potential catastrophe for people who shouldn't have one.

 

[luckydriver]

29 minutes ago, monacho said:

Lucky:  I don't think you mentioned how old mom is in this scenario.

 

If she's 80 years old AND the house appraises for $240,000 then she would not be able to clear enough to pay off her $120,000 mortgage.

 

If she's 85 then after paying all the closing costs (costs are generally high on Reverse Mortgages) she would be able to get access to about $126,000 which would let her pay off the mortgage and put a few thousand dollars in pocket.

 

If they have made any insurance or tax payments late over the past 24 months then she will not be able to get even this much because they will force her to set aside money for paying taxes and insurance.  Likewise if her credit shows an unwillingness to meet her obligations.

 

Everything you have told me makes it appear to me that this is not a good solution for her.  This is a good tool for the right person, but it is a potential catastrophe for people who shouldn't have one.

 

 

77

i do not understand why a 240K house cannot pay off a 120K mortgage then have tens of thousands in extra cash to draw down on , so to speak.

[hegemony]

240k will at the max result in 192K RM in the best scenario; rates and other factors may lower this significantly.

 

Edited September 20, 2018 by hegemony

[tiggerlgh]

They will get max of about 70k now and lose the house when the mom dies or goes into a home. If they sell they get $120k based on your numbers (less fees) and can get a place they can afford and not worry about losing on a couple years.

Good luck to them but the choice is obvious.

[jodyangel]

On ‎9‎/‎16‎/‎2018 at 5:39 PM, hegemony said:

everyone I know who looked into a RM figured out that they are a terrible idea for 99% of consumers.

Why? We're considering it....

[IndyPoolPlayer]

19 minutes ago, jodyangel said:

Why? We're considering it....

They are predatory loans for seniors. You'll get about 1/2 or less of what the home is worth after all the fees and charges. As stated above, if one of you goes into assisted living or a extended care facility (nursing home) they will call the loan and sell the house with you receiving nothing further after that.

[jodyangel]

Really!! 

[hegemony]

reverse mortgages are very expensive; there are some people who can benefit from one but probably only a small fraction of those who actually obtain one