Mortgage Advisor: John Holmgren.
Property type: Condo in Nob Hill.
Home value: $1.3 million.
Loan amount: $546,000.
Loan type: Homesafe jumbo reverse mortgage.
Rate: 7 percent with a $17,000 origination fee.
Backstory: John Holmgren’s clients were referred to him by their CPA, who was aware that the homeowners had depleted their savings and did not have sufficient retirement income to pay their living expenses, including home care costs.
Since they owned their home without a mortgage the best choice would have been an FHA HECM (home equity conversion mortgage), which allows homeowners to receive funds in monthly installments, a lump sum, a line of credit or a combination of all three.
To get an Federal Housing Administration loan, a condo must be on the FHA-approved condominiums list. This project had just three units that had rarely changed hands, so the association had never had the need to go through the FHA project approval process.
Holmgren has worked with homeowners associations to get projects approved, but this can be a lengthy process. With the need for financing being very urgent in this case, there wasn’t time for that process to be followed. Holmgren suggested that the homeowners pursue a non-FHA reverse mortgage since that product does not require FHA approval. The other main difference is that the funds are distributed only as a lump sum.
That’s when the complication set in: in the title report for the property appeared a lien from a previous mortgage, of which the homeowner had no knowledge. The title company was not able to find any information about the lien, but Holmgren was able to track down the source of the lien: the homeowner’s brother, who had owned the unit previously, had placed the lien on the property for unknown reasons.
That lien had to be removed for the reverse mortgage to go through but the brother had been deceased for a number of years. Holmgren was able to locate his heirs and explained that he needed their cooperation to remove the lien. Fortunately, they were fully cooperative in this process.
Once the homeowners were cleared to proceed, they had to choose whether to receive a smaller amount of money at a rate of 5.99 percent or to go for larger amounts with higher rates and costs.
Given that these funds were going to have to support their living costs for the rest of their lives, they elected to go with the highest rate/highest cash option to make sure that they had a healthy financial cushion.
John Holmgren, Holmgren & Associates, 510-339-2121, email@example.com.
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