Does Santa qualify for a Reverse Mortgage?


EDITORS NOTE: This post is a re-print of an article that I wrote a couple years ago. With the holidays upon us, I couldn’t resist the opportunity to share this again and also remind my readers that we do offer reverse mortgages at Mortgage Master Service Corporation.

If Santa and the Mrs. would like to add a steady tax-free income each month while he’s volunteering, making toys and traveling around the world, he may want to consider how a Reverse Mortgage could benefit their lives.

Reverse mortgages can be a financial tool for Seniors who would like to have access to additional funds.   A reverse mortgage is essentially a loan against home equity for borrowers who are at least 62 years old.

Unlike a traditional mortgage where you make monthly payments, a reverse mortgage pays from your equity.   Instead of paying down your balance every month, your loan is actually growing as it provides tax free income to the Senior.  The mortgage is paid off when the last senior leaves the home.  Here is a calculator to see how much cash you may qualify for utilizing a reverse mortgage.

Reverse mortgages are easy to qualify for as long as their is enough equity in the property:

  • Youngest borrower must be 62 years of age or older.
  • No income or credit score requirements.
  • Counseling is required from a HUD approved agency (no cost to the borrower).
  • Property must be the primary residence.  (It does not need to be mortgage free).

In addition, reverse mortgages are non-recourse (the borrower can never owe more than the appraised value).

Santa and Mrs. Claus can use a reverse mortgage to:

  • receive a lump sum of money (with no payments due until the last borrower leaves the home).
  • receive a monthly tax free payment.
  • purchase a primary residence.

The money can be used for anything they wish from bridging the financial gap between what they planned for retirement and the reality of retirement to vacationing or what’s on their Christmas list.

I’m pleased to be able to offer Reverse Mortgages and the Family Opportunity Mortgage programs both designed to help Seniors. Questions?  Please contact me or your local Mortgage Professional.

The Family Opportunity Mortgage Refinance

I’ve written about the Family Opportunity Mortgage for purchases where certain circumstances allow one to obtain a mortgage for a family member who is either a student in college, a disabled adult child or an elderly parent. The Family Opportunity Mortgages allows financing to be treated as a primary residence instead of an investment property as long as the scenario meets certain guidelines.  The Family Opportunity Mortgage is a Fannie Mae/Freddie Mac program that is also available for refi’s!

I’m currently working with a client who wants to refinance a home she owns that her elderly parents are living in. The Family Opportunity Mortgage allows for her parents to be able to live nearby and not have to meet the requirements of a second home (typically a minimum of 50 miles away from your current residence) or the higher interest rate and cost associated with an investment property.

Here are some of the requirements for the Family Opportunity Mortgage when an adult child is refinancing (or buying) a primary residence for an elderly parent:

  • Elderly parents must be unable to work or have insufficient income to qualify for the mortgage;
  • The parent must occupy the property as their primary residence;
  • The adult child may own their own primary residence;
  • Only “rate term” refinances are allowed. Cash-out or paying off non-purchase money second mortgages/HELOCs are not allowed;
  • Parent may be on the mortgage or the deed but is not required to be;
  • A written letter of explanation will be required from the adult child addressing the parents limited finances and intent with the home.

As of the publishing of this post, I’m quoting 3.625% for a 30 year fixed Family Opportunity Mortgage refinance (apr 3.717) based on 720+ credit scores.  The $250,000 loan amount will have a principal and interest payment of $1,140.13 which will drop my client’s mortgage payment by $400 a month!

NOTE: The quote above is as of August 14, 2012; for a current rate quote for your home located anywhere in Washington state, please click here.

We are pleased to be offering the Family Opportunity Mortgage at Mortgage Master Service Corporation. If you would like a mortgage rate quote for a refinance or purchase on a home located anywhere in Washington, click here.

Financing a “Kiddie Condo” for your College Student

A few weeks ago, I helped a Kent couple purchase a condominium located in Seattle for their daughter to live in while she attends college at Seattle University. They were prequalifed with their credit union, however the credit union was treating the transaction as if it were an investment property even though the couple (we’ll call them Mr. and Mrs. Kent) were not going to rent the property.

You see most lenders require that a home be located at least 50 miles away before it can qualify as a second home.  The city of Kent is just over 20 miles away from Seattle. Some lenders may even require that a second home meet conditions that one would consider a “vacation” property. It can really boil down to the underwriters interpretation of the actual scenario.  If a home does not qualify to be treated as a second home, then it’s likely to be considered an investment property which has higher interest rates, closing costs and tougher underwriting criteria.  

The Family Opportunity Mortgage is a special Fannie Mae/Freddie Mac program that we have available at Mortgage Master Service Corporation. It allows for this type of scenario to be treated as a second home as long as:

  • the property is a reasonable distance from the parent’s home
  • the parents may not own a second (or vacation) home near the subject property
  • the child is enrolled in a nearby college
  • the property may not be rented or used as an investment property
  • the child occupies the property for a minimum of one year

We were able to provide Mr. and Mrs. Kent with an “owner occupied” rate for the condo they purchased for their daughter where the credit union could only offer a non-owner occupied rate.

NOTE: Mortgage rates quoted below are from when I originally wrote this post on June 2, 2011 and are outdated. For current mortgage rate quotes for your home located in Washington, click here.

Here’s what the difference would look like based on today’s pricing for a condo* based on a sales price of $435,000 with an 80%* loan to value (down payment of $87,000) and 740 or higher mid-credit scores:

Family Opportunity Mortgage:

30 Year Fixed: 4.625% (apr 4.790).  Principal and interest payment (P&I) = $1789.

15 Year Fixed: 3.750% (apr 3.962).  P&I = $2531.

Non-Owner Occupied/Investment Property

30 Year Fixed:  5.125% (apr 5.311).  P&I = $1895.

15 Year Fixed: 4.250% (apr 4.489).  P&I = $2618.

*NOTE: Condo’s have a “hit to fee” of 0.75% with conventional pricing if the loan to value is over 75% or the mortgage term is over 15 years.  An additional 5% down also helps with pricing when you are financing an investment property.

Here is the same scenario as above except with 25% down payment ($108,750):

Family Opportunity Mortgage:

30 Year Fixed: 4.375% (apr 4.544).  Principal and interest payment (P&I) = $1738.

15 Year Fixed: 3.750% (apr 3.970).  P&I = $2373.

Non-Owner Occupied/Investment Property

30 Year Fixed:  4.750% (apr 4.900).  P&I = $1815.

15 Year Fixed: 4.125% (apr 4.426).  P&I = $2434.

Mortgage rates quoted are effective as of 8:00 a.m. June 2, 2011.  Rates can and do change often.  For your personal rate quote on a home located anywhere in Washington, please contact me.

Family Opportunity Mortgage…now at Mortgage Master Service Corporation

The Family Opportunity Mortgage helps families who are buying or refinancing homes for college students, elderly parents and disabled adult children.   Without this program, these transactions would often have to be considered as “investment properties” with higher interest rates and closing costs.   Now, it can be treated as a vacation or second-home mortgage.

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