Downsizing for Retirement
The recent Case Study below is about a client that we were able to help achieve her goals for retirement through implementing the use of the FHA insured reverse mortgage program. Many people are unaware of how a reverse mortgage can be used to purchase a new home rather than being used to stay in their present home. Such is the case with the beginning of this story. It is the end of the story that makes this such a great example of a Reverse Mortgage success.
Kathy was a client that I have known for many years. I have helped her and various other members of her family to purchase and refinance many homes and investment properties over the years. But this time it was different.
Kathy called inquiring about how she could possibly qualify to downsize to a less expensive home in anticipation of retirement. She was not quite ready for retirement but was anticipating doing so in the coming years. She had recently changed jobs and she was no longer comfortable with the idea of keeping up mortgage payments on her North Orange County home.
The idea was to sell her present home and purchase a less expensive home with a smaller mortgage or none at all. She had a first mortgage of about $330,000 and a second mortgage of about $72,000. She had already secured a buyer who would pay her approximately $750,000 for the property. After all the expenses of sale were paid, Kathy was going to net about $310,000.
There were actually two problems standing between Kathy and her goals. The first was that with only $310,000 to purchase a new home her choices were very limited or almost impossible in Orange County. That amount of money would only buy a condominium in Orange County. She was accustomed to a single family home and wanted room for visiting family members.
The second problem was that she didn’t want a mortgage payment. Although she was still working, she wanted her earnings to be used to build her savings for retirement.
After an initial meeting I suggested the FHA Reverse Mortgage Purchase program for Kathy. She was completely unaware of how we could use this method to purchase a home. Her Realtor had never heard of the program either. After another meeting with her and her Realtor we were able to give her a loan pre-approval based on this little known program. We explained that based on her particular qualifying situation she could buy a home with about 45% down and put have no monthly mortgage payment as long as she remained in the home and paid the taxes and insurance.
Kathy was able to find a $482,000 single family home and put $232,000 as a down payment.* This new home required no monthly mortgage payments at all. She was able to then use the other $78,000 from the sale of her home to pay off all of her other debts. We also helped Kathy understand how to transfer her low proposition 13 taxes from her previous home to her new one.
The bottom line
Our client was able to remain in a single family home, do so without any new mortgage payment, retain her old super low property tax basis and prepare herself for a much more comfortable retirement. We were able to work closely with her Realtor, the listing Realtor and her financial planner to understand how this could be achieved and how it was a win-win for all concerned. Then we followed through and executed the plan. Another great result accomplished by careful planning and a coordinated effort.
*Each borrower’s qualification and potential loan amount is based on his or her age, income and financial capacity. The numbers illustrated above are not the same for each scenario and cannot be relied upon in your own situation.