4 Feb 2017
My clients, Nancy and Bob, are both in their mid-60s. Bob has pared down to part-time work as a computer consultant, and Nancy teaches part-time at a local college. They have always been fiscally conservative, making financial choices that enabled them to pay for their children’s college education. For retirement, their strategy was to downsize once the kids were grown, to create their retirement nest egg. Of course, they hoped to get the highest sales price possible, given their very desirable neighborhood.
There is one problem – their house hasn’t been updated for years and needs a lot of work to get the price they are counting on. Nancy and Bob feel confident every dollar put into renovation will get them twice the return. So it made sense to finance improvements with a home equity loan. But the meeting with the loan officer at their local bank did not go well. The banker told them they wouldn’t qualify for the loan amount they needed because of their part-time work status and income level. They asked another bank and then another. Same answer.
Bob went online to search for other ways to finance home improvements. He came across an article from U.S. News & World Report naming reverse mortgages, officially called Home Equity Conversion Mortgages (HECM), as an option for homeowners who are 62 or older. Bob called their financial planner, who suggested they speak with me.
At our first meeting, I explained to them that they just needed to show enough income to afford the property taxes, home insurance, and a reasonable amount to cover personal spending. They were able to borrow slightly more than 50% of the maximum property value of $625,500 (now $636,150 as of Jan’17), giving them more than enough money to fund their renovation “wish list.” Most of the closing costs in a HECM are rolled into the mortgage itself, they just need to pay for the appraisal and a counseling session (mandated by law). But the best part is they don’t need to pay back the balance until they sell the property. Now, there’s no financial pressure or urgency to sell. They can wait for the right offer and even stay put for a bit to enjoy the renovations. The point is, they have time on their side now: no pressure, no monthly re-payments.
While reverse mortgages are not for everyone, a licensed and trustworthy HECM loan specialist can help guide your decision-making process if you are looking for solutions to help fund supplemental retirement income, a renovation, long-term care, business cash flow, college expenses, or to purchase a smaller second home.