I will be 62 1-17, my wife is 58, we are both retired at present. We own acreage (deed) under an LP where we are both partners and intend to build a home on it. We can pay outright for the home and own 100% equity in house and acreage. My thought is take a reverse mortgage to fund the next 5-10 years of living expense while delaying IRA withdraw and letting it grow and also delay SS until full benefit or wait until 70 to collect. Question if the LP acreage that house will be on is considered together to utilize LP acreage equity and is this a sensible use of the reverse mortgage? – Eric

question-answer

Hi Eric,

You have raised a number of issues that are not simple issues to resolve in this format.  I have to start by telling you that I am not a financial planner and that I cannot give you financial advice.  I can answer your questions about the reverse mortgage program but to determine whether or not the reverse mortgage is a “sensible use” of the acreage in your circumstance, I would direct you to a financial expert in your area or one who knows your finances and goals.

With regard to the loan itself, you must transfer the property into your name as an individual (your wife being under 62 would have to come off of title and would be a non-borrowing spouse) if you wish to do the loan.  The loan must encumber just one parcel; it cannot cross collateralize multiple parcels of land.  Therefore, if the acreage that you reference is part of the same legal parcel on which the improved home is situated, then yes, that value will be considered – but the appraiser will have to be able to find other sales of similar properties when doing the appraisal.

You don’t indicate the amount of the acreage but for argument’s sake, let’s call it 5 acres of land with a pad suitable for building.  If the 5 acres is a separate legal parcel, it would not be considered in the value and would not be encumbered by the loan.  If the 5 acres was all part of the same legal description, it would also be encumbered with the reverse mortgage but the appraiser would have to be able to find similar, sales with 5 acres parcels to determine the value of the lot.

Larger parcels of land begin to get a bit touchy.  If the land is zoned agricultural, commercial or deemed that the value is all in the land and not as a residential property, then it may not even qualify for HUD insurance and therefore would not be eligible for the reverse mortgage program.  Some borrowers do a lot split before they ever start their reverse mortgage to keep the actual parcel for the home down to the same size as other homes in the area so that they will not lose the value of the excess land that the appraiser would not be able to use.  Before you did anything like that, you would want to verify local sales and zoning ordinances to be certain that you were not incurring unnecessary expenses that did not improve your position.

I know this may not give you the answers you seek, but I would rather give you an idea of the things you need to research than to give you a short and quick answer that leads you to the wrong conclusions.

Request your quote here and please let me know if I can help you along the way.

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