Years ago, my wife and I looked into getting a reverse mortgage. I was still working at the time, so we were just checking it out. Fast forward to 2017. We’re looking at downsizing on the one hand as, due to some family responsibilities, our finances had tightened. I’d lived in Portland, Oregon for 30 years and I considered it to be home (even though I was born and raised in and around New York City). We really liked our home and our neighborhood, and we had lots of equity in the house. However, our property taxes were major and they were going up each year. So, we took another look at a reverse mortgage, and again, because of the amount of our property taxes we didn’t follow up then.
Family package deal
Short digression, by way of background: I am my wife’s second (and I sure hope last) husband. She has two daughters from her first marriage. They were 11 and 15 at the time, so they’re now in their 40’s. I have a strong relationship with each of them. The older one said the marriage was kind of a deal; their mom got a husband/companion and I got a family.
A little more background: My older stepdaughter took over her father’s restaurant with her then-husband, in 2007. It’s the anchor restaurant in the Oregon wine country, operating for more than 40 years in McMinnville, about 40 miles southwest of Portland. In 2008, shortly after they were married, they bought a house. Given their pretty much non-existent credit history and a low credit score, my wife and I had to cosign their mortgage. A few years later, with two young children, having outgrown their house, my wife and I bought a house that they rented from us.
A few years later, he and my step-daughter split up, and he moved out and into the house on which we cosigned. He then left the restaurant and took another job, leaving my step-daughter to run the place by herself while raising her daughters, who were then 4 and 6. We were committed to being there to provide whatever back up she needed from us, which meant commuting from Portland several days each week.
Our reverse mortgage journey
Shortly after their divorce, the daughter’s ex-husband decided to quit his job and move to North Carolina with his girlfriend. It was then that we realized the sanest thing to do was to move to McMinnville. That was the beginning of our reverse mortgage journey.
At first, we tried to pre-qualify for a conventional mortgage. I’ve used a mortgage broker over the years, so I called him to help us get pre-qualified. He got back to us with the news that we couldn’t qualify at all. We were signatories to three mortgages-the one on our Portland home, and the two houses in McMinnville (the one we owned and the one for which we cosigned). That was too many given our annual retirement income. Also, and this was the kicker, the ex-son- in law had missed several mortgage payments both before and after the divorce. Even though we had nothing to do with his failure to pay, our credit score tanked.
Reverse for purchase
At some point, I learned about a little-known form of the reverse mortgage, the reverse for purchase mortgage. It’s sort of a hybrid between a conventional and reverse mortgage- the mortgagee makes the down payment on a new house and borrows the rest as the reverse mortgage. Over time, like a standard reverse mortgage, the loan increases and we pay property taxes, insurance, and maintain upkeep on the house. So, that’s what we went for. Unfortunately, our credit situation and the fact that we were on three mortgages when we applied, we had a lot of hoops to jump through.
The initial application process was no more onerous than a conventional mortgage: financial records, tax returns, credit reports, etc. However, the three mortgages and the former son-in-law’s failure to fail to make two mortgage payments, and then, subsequently, his failure to make payments again created major hassles. We had to write several letters of explanation to the mortgage company explaining what happened and that we had no control over the situation. Also, we had to do a lot of explaining about the house we owned that we rented to my step-daughter-whether we lived there and therefore were trying to purchase a house that we weren’t going to live in (verboten to get a reverse mortgage). Fortunately, the mortgage company finally got that we weren’t the problem, that we were innocent bystanders, so to speak.
Well, that’s my reverse for purchase mortgage story. Eventually, it worked out- we like our house, McMinnville is fine as are the grandkids (most of the time). We got a puppy and he and the grandkids are over the moon for one another.
An asset for your heirs
If you’re contemplating a reverse mortgage or a reverse purchase mortgage, it can work. I’m not someone to give advice on reverse mortgages, but here’s something that occurred to me that you might consider: you’re not gaining equity during the time you have a reverse mortgage, your mortgage is increasing, hence “reverse”. So, where you live or where you are buying could really impact the future. For example, I live in a town where real estate values are increasing, therefore the value of my home is increasing faster than the value of my loan. In such a location, if you’re still thinking you want to use your home as an asset for your heirs, who will have to sell it when you move out or die, it makes sense to have a reverse mortgage. That way, they can sell for more than the loan amount and get something for themselves. If you’re not in a growth market, a reverse mortgage or reverse purchase mortgage can work for you if you’re not looking to pass on the home as an asset (and keep in mind that even if the house is underwater when it’s time to sell, since your loan includes mortgage insurance, the government in effect pays the difference between the loan amount at the time of sale and the sale price).
– Edward from McMinnville, Oregon, a FAR customer who is finding purpose in this new stage of his life.
Edward writes for FAR and is also a customer. He is 73-year-old, born and raised in and around New York City. After college and a little graduate school, he took Horace Greeley’s advice and went west. Edward lived in several cities throughout California and currently resides in Oregon. He practiced law for a few years as part of a law collective doing what they called “people’s law,” but spent most of his career working as an internal organizer for the unions.
When Edward’s career ended with the unions, he was determined to become an advocate for older adults. He enrolled at Portland Community College studying Gerontology. He learned a lot about aging and how it applied to his own life experiences and my own aging process. Much of Edward’s writing is related to what he learned in his Gerontology studies.
* The opinions expressed in this article are those of the authors. They do not necessarily reflect the opinions or views of the Finance of America Reverse (LLC).