Should I get a reverse mortgage or a bank loan for my elderly folks?
My parents are 90 and 92 and still living at home. One has fairly advanced Alzheimer's, the other is bedridden. They have home care 24/7. But they're running out of money to pay for it. Their house is a tear-down but the property is very valuable. Should we get a reverse mortgage or would a regular bank loan be betterL?
One difference between qualifying for a bank loan and a reverse mortgage is that borrowers must meet strict credit criteria when applying for a traditional loan. Credit history is not a criterion for a reverse mortgage. Most elderly people do not have sufficient credit scores to qualify for bank loans. Another difference between a bank loan and a reverse mortgage is that payments need to be made on the bank loan, but not on the reverse mortgage. Since your parents are running out of money, they may not be able to make loan payments even if they can qualify. While a reverse mortgage usually has significantly higher fees than a bank loan, this is one situation where it appears to make sense.
You mention that the house is a tear down. If more than 15% of the home's current value would have to go toward home repair, as mandated by HUD, it may not qualify for a reverse mortgage. I would hope that it does not exceed that amount so you can help your parents.
A Reverse Mortgage is probably a very good choice to consider in this case.
Some Banks will make Home Equity Loans without consideration of income, but credit is certainly important.
All payments from a Bank Loan or Home Equity Line would have to be made from the Line of Credit itself, and so there would be a point in time where the money in the Line was exhausted and there were no more funds to make the payments.
Key to a Reverse Mortgage is whether the home meets HUD/FHA standards. The home has to be in "reasonable condition", and funds for necessary repairs can be escrowed.
The question is whether the home is a "tear down" just because of the neighborhood, where a newer an larger home would likely be built in the future, or whether it is a "tear down" because of poor condition.
There are some limits as to what the value of the land can be with respect to the total, and also some limits on the quantity of land. Both depend largely on what is normal for that particular area.
I am going to give a different opinion and recommend against a reverse mortgage in this situation. You need to identify the purpose for taking a reverse mortgage and determine if it's in the best financial interest of your parents. My mom had alzheimers and my dad was in the last month of his life with terminal cancer on narcotic pain medication when sold a reverse mortgage they did not need. After my dad died I became caregiver for mom and she was trapped in her home in an unsafe environment at the end of life due to the reverse mortgage terms.
There is one reason to get a reverse mortgage: Use as a tool in your financial strategy, meets your financial goals, and provides financial security through retirement. A reverse mortgage is a complex financial instrument with lifelong consequences for seniors. You need financial and legal advice to understand those consequences and if they are acceptable to you because once you sign on the dotted line it is very difficult to recover from the financial damage. I welcome calls from consumers, consumer advocacy agencies, legal and financial professionals. Sandy Jolley, Reverse Mortgage Suitability and Abuse Expert.
If more than 15% of the home's current value would have to go toward home repair,
Actually, it's 30%. The first 15% can be taken into the loan. The remaining 15% can't be a part of the loan - it must be paid upfront.
If your parents can afford the monthly payment, and qualify for a mortgage, I'd suggest a traditional Forward Mortgage, or Credit Line. But you said they're running out of money, so making a monthly mortgage payment probably wouldn't help their situation. That's one of the reasons a Reverse Mortgage would provide a reasonable solution.
Stay Connected With Caring.com
Get news & tips via e-mail