Looking at Retirement and Your Home
With the baby-boomers entering the retirement arena (though maybe not as fast as some of them had hoped for) it is important to have some idea as to what you are going to do about your home.
In the past there were basically two options. You could just keep on living in the home (which was probably paid for) or you could sell the home to buy something in another area that you believed would be better during retirement.
Today, the options have grown some more. Following are a few words about the various options that are now available.
1) 1) Your house is paid for and you like your neighbors – you can still stay there.
2) 2) Your house, paid for or not, is nice, but needs some updating and upgrading to make it possible to be able to remain there for many years to come. There are three ways this could be done:
a) You could do a refinance, taking out the funds for the updating/upgrading - FHA, VA or conventional (there are limits as to how much you can take out of the equity);
b) You could get an FHA 203(k) loan, which is designed to provide funds for the updating/upgrading of the home. In this scenario, you would have to put together the plan for what changes there would be, and how much they cost, before beginning the loan, and then paying for multiple inspections/appraisals; and
c) You could possibly use a Reverse Mortgage to clear your mortgage, and get additional funds for the modifications, and depending on the situation, perhaps have some additional funds coming to you monthly.
The Reverse Mortgage (also known as a Home Equity Conversion Mortgage – HECM – is available for those who are over 62 years of age. The amount you can borrow using a Reverse Mortgage is tied to the age of the younger member on the contract. For those at the lower edge of the age range, it may only be about 50-55%. For those who are about 90, it is in the neighborhood of 70% of the appraised value. If you have an outstanding mortgage, the Reverse Mortgage needs to be large enough to clear the standard mortgage.
Then any leftover funds can be drawn in various ways. One choice is a lump sum advance and keep some of it in a money market account. Or you could set it up as a line of credit, that grows based on a predetermined interest rate, and you can draw out funds as you need them. Thirdly, you could set it up to pull out a set
With the HECM, you do not have any mortgage payments to make (though you do still need to keep the property properly insured, and keep the taxes paid.) This alone can bring several hundred dollars of additional cash flow into your pocket, even without drawing on the rest of the loan principal. If you need additional cash flow, then you can draw down the principal amount in one of the ways mentioned to bring about a better outcome.
There are fewer restraints on the use of the funds from a Reverse Mortgage than on an FHA 203(k). Therefore it is important for the borrower to go through the counseling and training on HECM before moving forward. Then one needs to find a good, licensed mortgage loan officer, who knows Reverse Mortgages to complete the process.