Janet S. was a widow who, at age 69, wanted to buy a new home, but found that the homes she was looking at cost more than she had in savings; using the “Reverse For Purchase” option of a HECM Reverse Mortgage, she was able to make her purchase after all, while still preserving the value of her estate for her daughter.

Janet’s predicament started when she decided to sell her home, as the taxes were high and the property was just becoming too much for her to handle alone.

After all of the costs associated with the sale, Janet netted $425,000. Because the property sold sooner than she anticipated, she moved in with her only daughter, and began the process of looking for her new home. To her dismay, she could not find a single property acceptable to her for the $425,000 she had available to spend, and since she was living on a small fixed-income stipend, she couldn’t afford to get a mortgage to pay for the difference.

Just when Janet was starting to wonder if she had made the right decision by selling her home, a friend mentioned a new version of a Reverse Mortgage called the “Reverse for Purchase” program, which Janet was able to use to purchase a home for $675k. The Reverse for Purchase loan that Janet obtained had all of her loan closing costs rolled into it; after accounting for those costs, the Reverse for Purchase gave her just under $258k to put towards the purchase of the new property, which meant that she was able to keep $8k of her original $425k as a buffer in her savings account.

Like all Reverse Mortgages, Janet’s doesn’t require any payments for as long as she is alive and living in her new home, so Janet is thrilled that she now has the piece of mind that she can live in the home for as long as she chooses to do so.

Janet also wanted to make sure that she wasn’t going to wipe out her estate by purchasing this property and that she would have something to leave her daughter when she passes away; while we aren’t estate planners, we were happy to run the numbers to show how the Reverse For Purchase would preserve the value of her property for her daughter. Since Janet is 69 and the average age for a woman in the U.S. is 79, we looked at what would happen if Janet passed away in 10 years. Assuming an annual increase in property values over that 10 years of 4% (which is actually lower than the long-term average appreciation rate for the DC area, but which we thought was a good conservative estimate given that we’re coming out of a very slow market right now), Janet’s home should be worth approximately $889k. After paying off her mother’s Reverse Mortgage and accounting for the tax deduction that she will get at that point for the accrued interest on the Reverse Mortgage, Janet’s daughter would still net around $511k; it’s a little less than she might get if her mother had put that $425k into the stock market instead, but in the interim, her mother will have a great home to live in while not having to worry about making mortgage payments.

Interested in finding out more about a Reverse For Purchase mortgage? We’d be glad to go over your options with you.

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Tags: case-study, reverse-mortgage