9/21/23 – Reverse Mortgages and why They Make Sense!

I spoke with a potential client yesterday, and everybody tells her that a Reverse Mortgage is not a good idea! I always get this, and I have been arguing this with people for over 33 years. A Reverse Mortgage is a tool to get you from retirement to the end of life, and it keeps you in your home for that time. Even in today’s high-interest rate environment, a reverse mortgage makes sense.

This client wanted to sell her condo for $500K and live off the money for the rest of her life. She has a $ 4,000 income that will increase slightly yearly and wants to rent and put the money in a savings account. She wants to buy two cars, and she will likely spend at least $50,000.00 of her proceeds. Great plan? NOT!!!

After selling commissions and taking away the money she will spend, let’s say she has $400K at 4% Interest, which is a $16K annual income. Her rent will be about $2500 per month, so she will be upside down by $1166 a month. If her rent increases by 3% annually, she will have a $3918 rent payment in 15 years while her income will be $6269 with the same 3% annual increase. You and I both know that she will spend some of that $400K, so that money will dwindle yearly, and so will her interest income. Oh, and will rates stay this high? NOPE!!!

On the Reverse Mortgage side, she could have no payment now and take out $150,000.00 to buy a few things like the cars and put some money in the bank. In 15 years, she will owe $427,000, assuming we never refinance her place to a lower rate. Her condo will be worth $1,056,000, assuming a 5% annual appreciation. So, in 15 years, she will have over 600K in equity and have no mortgage payment. Assuming she refinances in 2 years when rates go lower and saves 2% on her interest rate (I hope we get there), she will only owe $330K in 15 years, which means she has over $700,000.00 in equity!

The kids will inherit the house when she passes, and they can refinance the mortgage or sell the house. Can you tell me again why a Reverse Mortgage doesn’t make sense?

Condo / Townhome issues we know of now:

1. American Beauty Village – Insurance
2. Scenic Hills – Insurance
3. Mariposa – Litigation – Agreed upon, but not yet recorded
4. Bouquet Canyon Village – Insurance
5. Scenic Hills – Insurance
6. Madison – Litigation
7. West Creek / West Hills – Insurance
8. Cornerstone – Insurance

Please let me know if you hear something new on Condos or Townhouses. We will see premiums increasing, likely increasing the HOA Fees soon!

Interest rates are like the San Francisco Giants! LOSERS two days in a row and losers all year! LOL! I heard from some 49ers fans after last week’s game, so I thought I would throw some crap back in their face. Either way, rates are up again today, and we will see where life takes us! The Fed did not do us any favors yesterday, and the employment numbers did us no favors today!

• 12-day escrows if your buyer is pre-approved - Conventional / FHA / Jumbo / Bridge
• We do loans in all states, so call me with anything you need.  
• Government Loans (FHA / VA) are in the mid to high 6’s.
• Conventional Loans up to $726,200.00 are in the high 6’s and low to mid 7’s.
• High Balance Loans $726,201.00-$ 1,089,300.00 are in 7’s
• Jumbo loans above $1,089,300 are in the 7’s
• Bank statement loans - They are available with 10% down again! 7’s and 8’s + depending on down and credit score.
• No income qualifier – 40% down with reserves! In the 6’s!
• 0 down loans are in the mid to high 7’s – 660 credit score min right now, up to $740,000.00.
• Private Money lenders - hard Money Loans – 35% down!
• No Ratio Loans 30% down
• Debt Service Coverage loans with as little as 25% down
• Bridge Loans - are typically 8.25% with limited fees – But they get you where you need to go!
• 0 down California Dream for all Equity Share – Postponed until October???
• 3/2/1 Buydowns 2/1 Buydowns and 1/0 Buydowns are available at great start rates!

Interest rates are subject to change without notice! Above are LA County Loan Limits.

I am around all week if you have any questions or if someone is interested in buying a property! My cell is 661-714-6258, and my office line is 661-260-2970 ext. 2222. Please text me at 661-714-6258 or email me at Mike@AugustaFinancial.com. Have a great day and a better tomorrow! Please call me when you have a client that needs to borrow!