How to Buy a Vacation Home

If you are a senior and  own your home but are still holding out on that dream of having the ultimate vacation property which you have wanted for years, you might just be “sitting” in the resource to make that dream a reality.

Why not use funds from a reverse loan to purchase that cabin, beach house or even a tree house?  Why not?

If you have enough equity in your residence you could possibly qualify for the FHA reverse loan or a Jumbo reverse mortgage and use the funds from it to purchase a second property.

Its much easier to qualify for a reverse mortgage then traditional mortgages, because they are not Underwritten using Debt to Income ratios or FICO scores, but are based upon residual income and verification of 24 months of “timely” payments for property taxes, Homeowners Insurance and any other expenses associated with the client’s residence.

You will still be on Title of your residence and continue to own it and just as you wish, it will go to your estate when you have passed on.

Not the Lender.

You won’t have any mortgage payments for the reverse loan and if the vacation property does require a mortgage (If you can’t pay “all cash” for it), you could cover those payments by renting it out during the local tourist season and still have it available for yourself whenever you want to visit it and enjoy your vacation property.

So where is your “dream” property? A beach, a lake, the mountains, the desert or an island?

What’s holding you back from enjoying your retirement years that could include more skiing, fishing, golfing, sailing or simply sitting back in an Adirondack  chair on a deck, looking at blues skies, trees and hearing birds sing?

That sounds really nice to me as well.

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Reverse Loans and Second Homes

A reverse loan has more than just one use for a homeowner other than refinancing their residence and it’s beneficial to know that funds from the loan can be used to purchase a property.

Most senior homeowners and Realtors are unaware of this option and could be using it to “downsize” into a smaller property or to purchase the “dream” home a senior may wish to buy in a 55+ community or move to an area of the country that they have always wanted to live in.

Another terrific option is to purchase a Vacation home.

Everyone often dreams about having a cabin, a beach house, a home on a lake or some other wonderful property that allows them to enjoy themselves and have fun and quite often, make it a family destination  for vacations and family reunions.

If qualifying for  mortgage payments using income and credit isn’t realistic  on a second property isn’t possible, why not use the equity in one’s residence to complete the purchase and possibly pay “all in cash” for the dream home and not have payments on it, and no payments on the reverse loan because they are not required.

How perfect is that? Two homes without mortgage payments.

How is this possible you are thinking?   Contact me to find out and possibly acquire that vacation home you have always wanted.

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The Costs of Care Giving

As the Boomer population ages and the reality begins to loom that at some point they may need someone to provide them with “care giving” but no one wants to talk about this possibility happening to them.

But as we age and I’m going to be 72 myself  ( Yikes, when did that happen?) our bodies are going to start to give us trouble as we begin our slide down the slope of aging and at some point, we may need help.

Ideally the Boomer generation has taken better care of themselves then our own parents did and we certainly are much more active than their generation who smoked, didn’t exercise and had high fat diets.

But at the least, they didn’t have as much stress in their lives as we seem to have in our’s and their generation lived a much slower daily pace compared to the hectic lifestyles so many of us have in this period of time.

Hopefully those of you who are reading this post and are of a “certain age”, will manage to dodge falling apart and having to rely on a care giver.   But what happens if you need one and you don’t have Long-Term-Care Insurance?

Medicare will not pay for this service in case you were under the impression it would, you have to pay for it.

You will have to rely on your own retirement funds if you happen to have any and pay a professional care giver or rely on family members to take care of you.   And that’s a terrible option.

There are two kinds of “costs” in this equation, the actual monthly expense that can run $4000 or more each month while you are helpless or the physiological  and turmoil and burden to your family members who will be overwhelmed by the responsibly of taking care of you.

And if you don’t have enough funds to cover this expense, it will be up to your children to pay for it and in many family situations, the adult children will fight among one another and it typically will fall to one of the children to pay for all the expenses and also to attend to your needs.  And the one’s who refuse to help in any capacity, will disappear.

As for paying for the care of a professional, licensed and Bonded care giver that expense could be paid by the funds from a reverse loan and it will become a safe and valuable option for money to cover the costs and relieve the adult children from using their own funds to pay for your care.

It’s something to think about, utilize one’s equity to pay for your own needs and not rely on your adult children and keep your dignity and keep your family intact.

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When Does a Reverse Loan Need to be Paid?

This is a question that many ask about since there are no mortgage payments made on a reverse loan as are required on a traditional loan.

Plus there is no loan term but when does the loan become due and what are those circumstances?

They are referred to as a “maturity” event and include the following situations.

  • Sells the home Conveys title of the property to someone else
  • Passes away
  • Resides outside of the principal residence for a period exceeding 12 consecutive months due to physical or mental illness
  • Fails to pay property taxes, insurance premiums, condo fees, and other “mandatory obligations,” and all options to bring the loan current have been exhausted
  • Fails to maintain the home and allows it to fall into disrepair.

The most common reason for the loan becoming due and payable is that the borrower(s) has passed away and the property and or the estate has been received by the heirs.

As soon as is possible, the heirs must contact the Loan Servicer letting them know that the borrower(s) have passed away.   The Loan Servicer will send them by mail a “Due and Payable” letter within 30 days and the heirs must respond as soon as possible to the Lender.

The Loan Servicer will explain the options the heirs have to repay the loan and it’s very important that the heirs contact the Lender by calling or emailing them to avoid the possibility of a foreclosure being activated by the Lender.

The Lender does not want to foreclose on the property and the heirs have the option of refinancing it and putting the Title in their name or  simply selling the home and thereby paying off the reverse mortgage.

But it is crucial that the heirs respond to the Lender letting them know how they plan to repay the loan.   The Lender will work with the heirs and help them through the steps to satisfy repayment, but communication is very important in the process.

My next post will go into additional details about how to satisfy the repayment and other details about the entire process.

 

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Reverse Loans and Bad Credit

In general having derogatory credit is less of an issue for being approved on a reverse loan than it would be on traditional financing.

The reverse loan applicant does undergo some “light” credit Underwriting to determine their residual income after all housing obligations are paid and this would also include any revolving or installment debts as well.

The underwriting process is referred to in the industry as the Financial Assessment and was put into place within the last few years, providing an overview of the borrowers financial capacity and willingness to continue making any on going payment obligations after the reverse loan has funded and closed.

FICO scores are not used to determine an individual eligibility for the loan, but if there are any late payments on an existing mortgage and other obligations, a letter of explanation must be provided along with the necessary documentation to support it.

But what if one had had a bankruptcy? Can they still be approved for the loan or not? The short answer is “yes”.

Chapter 7 Bankruptcies must be dismissed or discharged prior to closing the new loan. If it was dismissed over one year ago, no additional documentation is required.

But if it was less than one year, the borrower must provide a court order signed by the judge as proof of the discharge or dismissal along with the discharge schedule.

Chapter 13 Bankruptcies have a couple of options.

The borrower pays the bankruptcy in full at the close of Escrow.  And obtain a payoff letter from the trustee.

The borrower must pay off any liens against the property and any federal debt.

The court must provide written permission signed by the judge indicating that the borrower does not need to pay off the bankruptcy to proceed with the reverse mortgage. This permission must specify that the mortgage may be an adjustable rate mortgage, if applicable.

Chapter 11 Bankruptcies are most prominently used by businesses and have similar guidelines as a Chapter 13 Bankruptcy.

This is a brief description about what the lending process is and what must take place in order to approve a reverse loan for a borrower who has had credit problems in the past.   But do contact me if you have any questions.

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