I heard an interesting statistic at a lead conference in Las Vegas a few years ago about "who" is doing most of the on-line searching for FHA Reverse Mortgages. According to this particular study, 85% of the leads generated were from the children of the Senior Citizens. This makes sense if you break it down. My mom and dad are slow to conform to the internet age, although they try to incorporate it in their lives, it is difficult. I deal with Senior Citizens on a daily basis and quite a few of them still do not have an email and they never will.
This presents an interesting dynamic for The FHA Reverse Mortgage and marketing this tool to Senior Citizens. I cannot tell you how many people have quit offering FHA reverse mortgages because they were so tired of the kids getting in the middle of the transaction and stopping the process. You could see the frustration in their eyes as they would tell stories about having a deal almost done that would help a particular client and then at the last minute a child would come in and stop the transaction because they did not want to "lose their inheritance" or they thought "this was a scam to take money from old people". I have dealt with this as well and I have found the best thing to do is educate the children.
Let us start with the number one reason children do not want their parents to do an FHA Reverse Mortgage: They do not want to lose their inheritance. This is an understandable driving force especially for children that may have done a poor job saving, do not have a job and are going through hard times financially. There are a myriad of reasons why they get very nervous about their inheritance.
I am not going to spend much time on the entitlement issues that come along with a child and inheritance. I come from the background that any inheritance I get is pure icing on the cake. My parents needs and well being comes first in my book. It is their money, not mine and they have worked hard to be able to use it as they see fit in the last half of their lives.
I have good news for all you children out there worried about losing your inheritance! This product can actually help preserve it and make it grow to a larger amount! Yes, it is true. Although the FHA reverse mortgage is a loan and it does accrue interest every year it is still attached to an asset that has quite a bit of value (The house of your parents). The reason I know this to be true is because for an FHA Reverse mortgage to even make sense there needs to be equity in the home. Also the lending limits are very conservative. Let me explain via an example:
Lets take 63 year old person with a home worth $300,000. The loan amount (or lending limit) for an FHA Reverse mortgage is 56.9% of the value.. aka 56.9% LTV (loan to value). At a 56.9%LTV the lending limit = $170,700.
Value = $300,000
Lending Limit or Loan amount = $170,700
This leaves quite a bit of equity reserves in the house and we are at or near the bottom of the real estate market. It is a good time to diversify! And the chances that the equity reserves will actually increase over your parents lifetime are good, thus your inheritance is safe. BUT, do not forget about the money they received from the FHA Reverse Mortgage.. that is still in play as part of the estate. If your parents got a check for $150,000 and they invested it or put it in the bank etc.. THAT IS STILL PART OF THE ESTATE along with the equity left in the home.
I am going to break this down much more in depth in my next blog, Part 2. But here is the bottom line; the money your parents get from the FHA reverse mortgage does not disappear. It typically goes into an bank account or an investment. You are simply locking in equity today and moving it somewhere else.
Have a great Labor Day Weekend. More to come tomorrow. Be Safe.
Sincerely,
Noah Burford
noahb4@gmail.com
No comments:
Post a Comment