Sell and downsize or get a reverse mortgage?

By
Real Estate Agent with HomeSmart Realty West CalBRE #01458572

My owner is a Realtor with Century 21 Award in San Diego.I have received a couple of questions recently from people wanting to know which was better, selling a home and downsizing to something like a condominium, or simply getting a reverse mortgage and staying in the home where they have been for a couple of decades.

This is one of those questions where my only answer, not being a mortgage broker, a financial planner, a CPA, or a tax attorney, is, "I don't know."

However, I can offer some guidance, and I'm hoping that some comments from more knowledgeable ActiveRainers can add some good information.

  1. To the best of my knowledge, reverse mortgage fees are usually higher than other types of mortgages.
  2. Condominium complexBe very careful if you are considering a reverse mortgage because there are a lot of mortgage scams that target our elderly. Be especially wary if you are asked to invest your reverse mortgage proceeds into any sort of financial product at the same time, especially through the same company.
  3. Consider that a home can have significant and ongoing maintenance tasks and costs associated with it, as well as insurance. If you are not physically capable of doing the maintenance yourself, or hiring trustworthy people to do the maintenance, selling and downsizing into a condominium can be a very good option. You'll have condominium owner's fees which will take care of grounds and exterior building maintenance, leaving you to care only for the inside of your condominium. If you have interior problems, such as plumbing, electricity, or heating/cooling problems, the condominium association often has maintenance personnel on staff or under contract to assist you at a much lower cost than hiring such personnel yourself.
  4. Many condominium complexes have security guards for additional protection, and some, especially if it's a condominium assisted living Condominium towercomplex, even have personnel who will help you to and from your car, as well as with packages needing to be carried from your car to your condominium.

The one thing that I think makes the difference between staying put and downsizing is whether or not you can oversee ongoing maintenance. The last thing you want to do is get a reverse mortgage, not be able to take care of your property, and have it deteriorate while you're still living there. 

If any readers have any comments to add, they would be greatly appreciated since reverse mortgages are not my forté.

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I'm available 24/7, so feel free to contact me by phone or email.

Jim Frimmer, Realtor
Century 21 Award Mission Valley
California DRE License #01458572
619-729-5701
jimfrimmer@century21award.com
Mission Valley Condos Information

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Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Liz Moras 12/01/2009 11:45 PM
  2. Janice Roosevelt 12/02/2009 06:10 AM
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Rainmaker
281,929
Carra Riley
Author, Speaker, Consultant, Carra Riley Inc. - Williams, AZ
CRB, CRS, GRI

Jim,

You have given the right advice... really a financial planner for the individual is a MUST... There are HUD approved reverse mortgages.. for whatever that is worth.. that are regulated by the FED's so that is one area to look into.  Some reverse mortgages never make the owners move out.. even after they have taken all their money... so depending on how old you are and how much money you have to hire someone to help you... all makes a difference in the decision... Estate planning for heirs.. all play into the equation so there is not one answer for the question... it all depends.

Dec 01, 2009 11:10 PM #1
Rainmaker
531,769
Liz Moras
Harrison Hot Springs, Cultus Lake - Chilliwack, BC
Chilliwack Realtor, Garrison Crossing,Chilliwack, Abbotsford

Ilike that Jim - this question is coming up more and more frequently.  I'd love to re-blog it! :-)

Dec 01, 2009 11:43 PM #2
Rainer
88,760
Christine Hynes
American Capital Corporation - Laguna Beach, CA
Orange County Senior Loan Consultant

Jim,

I agree it is tough to figure out downsizing and then when you add a condo into the mix there is the association fee that can go up and up.  However, the maintenance may be less.  So, there is alot to weight when you think about a condo.  As far as lending, guidelines are much more restictive, so getting a loan on a condo is more difficult and rates can even be higher depending on your ltv.  Also, if there is litigation, most banks won't lend.  We are in tough times.

Dec 02, 2009 12:13 AM #3
Rainmaker
582,897
Susan Neal
RE/MAX Gold, Fair Oaks - Fair Oaks, CA
Fair Oaks CA & Sacramento Area Real Estate Broker

Hi Jim - The key is that the answer is different for each person and each situation.  I have put people into reverse mortgages, including the new purchase reverse mortgage, and they feel it is the best thing that they could have done.  The fees do seem bigger than a forward mortgage, but mainly that is because for most loans, the fees are spread out over years, but for a reverse, the fees have to be all bunched up at the front, including PMI, because of the very nature of the loan.  If you expect to have the mortgage for more than 5 years, it is a good deal.  If you think it will be less, then it might not be.  Having no mortgage payments and having an equity line for emergencies can make an older person feel very secure.  It isn't for everyone, but for some it is a lifesaver.

Dec 02, 2009 12:38 AM #4
Rainmaker
562,448
Steve, Joel & Steve A. Chain
Chain Real Estate Investments & Mortgage, Steve & Joel Chain - Cottonwood, CA

Jim, We have friends who decided to do a reverse mortgage a few years ago. Before the drop in prices they could have sold for a nice profit. The went with the RM. They underestimated their cashflow needs and now the home value has dropped so there's no equity and no sale possible at this time. Challenging to say thie least.

Dec 02, 2009 12:39 AM #5
Rainmaker
273,377
Irene Tron
Valparaiso, IN

The difficulty is that there is not one answer that works for everyone.  That's why your suggestion of using a financial planner is excellent.  I tend to be very cautious of recommending a reverse mortgage to anyone.

Dec 02, 2009 05:29 AM #6
Rainmaker
468,836
Janice Roosevelt
Rory Burkhart Team, Keller Williams - West Chester, PA
OICP ABR, ePRO,Ecobroker

Jim, so I must need to pay attnetion to reverse mortgages this week, It is the third time it has come up. Thanks for the post.

Dec 02, 2009 06:10 AM #7
Rainmaker
895,352
Brian Madigan
RE/MAX West Realty Inc., Brokerage (Toronto) - Toronto, ON
LL.B., Broker

Jim,

It's always an individual decision as to what makes sense. There should be some articles on this topic, reviewing the pros and the cons. This is not only about lifestyle, but it's also about financial resources and investments.

Brian

 

Dec 02, 2009 07:14 AM #8
Rainmaker
1,228,610
Al & Peggy Cunningham Brokers, Brampton Ontario Homes For Sale 905-450-5500
RE/MAX Realty Services Inc. - Brampton, ON

You gave excellent advice Jim as well as stating your are not a financial advisor or mortgage broker.  While on the surface it appears to be a solution, one must delve into their own personal situation carefully.  We also agree when you said, "The last thing you want to do is get a reverse mortgage, not be able to take care of your property, and have it deteriorate while you're still living there."  That in itself would be a major problem.   

Dec 02, 2009 08:11 AM #9
Rainmaker
1,488,584
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Authentic Feng Shui Expert

Jim, I have often thought that I don't want a house when I'm older.  The work is never ending and I have to call someone in for everything.  I think finding the right condominum would be a wonderful choice for me.

Dec 02, 2009 02:50 PM #10
Rainmaker
413,313
Betina Foreman
512-771-6318 Austin Home Girls Realty - Austin, TX
Realtor, C.N.E. Selling Homes in Lake Travis & Central Austin!

Dear Jim,

You gave the perfect advice. Only the person in question knows what is the right choice for them. Personally I would move into a condo and avoid all the maintenance headaches in my 'golden years' Of course it would be hard to give up my home on a private acre of land and pool, but if I never scooped another leaf or never spent 1/2 day mowing and edging I would be a happy woman!

;)

 

Dec 02, 2009 03:34 PM #12
Rainmaker
1,108,239
Jim Frimmer
HomeSmart Realty West - San Diego, CA
Realtor & CDPE, Mission Valley specialist

Hey, Carra - Thanks for your help.

Hey, Liz - Thanks for reblogging this. I also found some excellent posts on reverse mortgages over at Lewis Corcoran's blog: http://activerain.com/lewcorcoran

Hey, Christine - My farming area has 39 condo complexes and I've seen the loan restrictions getting much more difficult.

Hey, Susan - Very good info. Thanks so much.

Hey, Steve - That sounds like a worst case scenario that has to be factored into everything.

Hey, Irene - Probably a financial planner is the only person who could really dig deep into someone's current needs and projected needs. Otherwise, things fall apart badly as in Steve Chain's comment.

Hey, Janice - Thanks for reblogging this. See my comment to Liz above about Lewis Corcoran's blog.

Hey, Brian - Thanks for commenting.

Hey, Al and Peggy - Steve Chain gave us an example of the home simply falling in value. Imagine if it also has a lot of deferred maintenance.

Hey, Carole - With the right condominium complex - just one other unit connection, pools, spas, tennis courts, etc. - I could very easily live in a condominium complex for the rest of my life.

Hey, Betina - I've always had someone else - mom, dad, brother, husband, landscaper - doing my outdoor work, but sometimes it is tiring just watching them.

Dec 08, 2009 04:15 PM #13
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Rainmaker
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Jim Frimmer

Realtor & CDPE, Mission Valley specialist
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