My father recently passed away and left his duplex to my brother and I, It is paid for and all taxes are current. I have lived in one side for over 25 years and my brother lives 100 miles away. I would love to keep this place and have my daughter move in next door with a reduced rent. I am 65 years old. The house was custom built in 1976, it’s stucco with a tile roof and is very sound and in excellent shape..I do not have the cash to pay my brother off though and was wondering about a reverse mortgage. He needs $150,00 and the house is valued at about $350,000 we think…..What % could I get of that amount at my age? Nobody seems to be able to tell me this and how much $$$$ then comes off the top at closing? We can just sell the house of course but if I can swing it, I’d like to stay. Thank you so much, hope I get an answer soon Judy.
The reason that the answer is a little harder in coming than what you are expecting is that HUD now has a little different formula for determining the amount that borrowers can receive in the first 12 months of their reverse mortgage based on the amounts owed against the property or what they have termed their “mandatory obligations”.
The mandatory obligations (those amounts that must be paid in full with the new loan) include any existing loans or other liens on the property. HUD will allow you to take up to 100% of the benefit amount for which you qualify immediately on a reverse mortgage to pay off mandatory obligations.
However, if your mandatory obligations are not that high, then HUD will only allow you to take up to 60% of your eligible benefit amount, or 60% + an additional 10%, whichever is less if some but not all of the funds will be used for payment of mandatory obligations in the first 12 months.
For example, not knowing where you live (and the corresponding closing costs), whether you are closer to 65 or 66 (if you are within 180 days of your 66th birthday you would get the higher benefits), I can’t give you exact figures either but I can get close. Let’s say that you just turned 65 so we will give you a birthdate of August of 1949.
Stucco homes are very popular in California so we will use California closing costs for this illustration, some states are higher though. With no existing loan to pay off on the house and depending on the fees at the time you took out your reverse mortgage (we currently are offering some great options with low fees), you could receive from about $109,000 to $114,249 depending on the fees you paid (All Reverse would give you the top of that range) in the first disbursement and then you would have another $78,680 available to you after 12 months for a total of up to $192,929 in proceeds no less than two installments twelve months apart.
While this may not have been the way you and your brother would have liked to see the payout, under the current program guidelines, this is by far the safest and cleanest way to make this work.
I have seen some folks run out and try to put a loan on a property really quickly and then try to use that as a mandatory obligation so that they could receive a higher up-front payout from the HUD proceeds and I’ve also seen that blow up in people’s faces.
Private party liens (in other words, if the loan was from a private individual and not a recognized bank or lending entity) require a “reasonable” seasoning (subject to HUD’s case by case interpretation) so you don’t get away from the waiting period anyway.
Also, I would hate to see you get a loan from a bank and pay expensive fees for an interim loan that were unnecessary. Not to mention that there is always the possibility that the property or something about the neighborhood does not qualify under the HUD program.
If you get another loan first, you could be stuck with that other loan (and the fees that went with it) with no way to escape it other than sale of the property if the reverse mortgage did not go through.
At least if you get the reverse mortgage from the onset, you have no other issues with which to be concerned – except waiting the 12 months for the second installment to become available.
2019's Reverse Mortgage Principal Limit Factors
|Age of Borrower||Percentage of Home Value||Home Value $200,000||Home Value $400,000||Home Value $600,000||Home Value $726,525 (Current Limit)|
PLF tables source: https://www.hud.gov/sites/documents/august2017plftables.xls