How Your Home Can Pay For It's Repairs With No Payments!!
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How Your Home Can Pay For It's Repairs With No Payments!!
[00:00:00] Have you ever wondered as a veteran who may be aging, what are your options with housing? It's like, I may not wanna sell my house 'cause I love my house, I love my location. But how do I, how do I get my house to pay for repairs? How do I get my house to make modifications so I can age in place? Well, today's guest.
Craig Gallegos, make sure I say right from Fairway Mortgage is going to be here to talk about reverse mortgages and to answer all our questions and or create some more. But let's take a look and see what we can learn today. Hi Craig. Thank you so much for being here today. I appreciate you taking time out of your crazy busy schedule and, being willing to talk with me and my veterans in regards to how can we use this reverse mortgage to actually leverage their home, aging in [00:01:00] place.
Repairs, even using it to buy a new home with the equity from their current home. And you and I were talking before we got started about some great tips and some great ideas. You also have this awesome tool, which I can't wait for you to share. So yeah, tell us a little bit about you first before we dive right into everything so we know a little bit about who you are and, fairway Mortgage and kind of why reverse mortgages are maybe your.
Sounds good. They're your thing. Well, Judi, Judith, thank, thanks a lot for having me. I appreciate you asking me to do this and. Just to tell you a little bit about myself, I was a financial planner before, I was a loan officer, so I did that for 20 years. I sold my practice, got out of that. It was a little bit too stressful.
You know, back then the market, the market market's been doing so well right now that it's kind of easy mode. But back then there were so many fluctuations. I was just, just like, I was done. The stress was getting to me. So [00:02:00] about 15 years ago, I became a loan officer. Nine years ago I joined Fairway Home Loans.
And, five years ago, I, I started doing reverse only. So those are the only types of loans that I do. My partner does all of the other types of loans, you know, jumbo conventional, FHA, VA, USDA, things like that. And I just strictly, stick with reverse. And, like I said, I appreciate you having me here.
Answer some questions. A lot of people have such a, a negative, thought for, reverse or negative aspect towards this tool, and it's simply because they're just not educated on the product. And there's been so many changes in the laws over the last, 15 to 20 years where. The, the seniors are safeguarded.
So the things that did go wrong back in the day won't go wrong anymore. So yeah, go ahead. What kind of questions do you have that you've heard from, you know, your homeowners that [00:03:00] would that I can answer for you? Okay. Well, one of the things like you just referred to is that really the thing that I, I didn't know what reverse mortgages were until a few years ago and.
The more that I hear about them and learn about them, and also as I personally age, it starts to really look a little more appealing. And I think most people, what I hear the most and the honest to goodness, I'm sorry, this is what I hear the most and I know you know what I'm gonna say is I'm gonna lose my house.
The bank owns my house. And when I hear that now I think if you have a mortgage on your house, the bank owns your house. Unless you own Yeah. You're you're on title. Yeah. Yeah. Unless you own the house free and clear, the bank has the title and they can take your house if you don't make payments. And it's the same thing with a car.
You don't own your car till you pay it off. And if you don't make the payments, they're going come and take that car. And so it's, it's [00:04:00] just that kind of fear, I think a mentality that they are afraid they're going to lose their security of homes and I think that the more that I've learned, the more that I feel a need to educate people about that option especially.
Okay. I live in a community here in Cottonwood that is a very high, 55. I mean, it's not a 55 plus community, but the majority of people who live in here are probably in there. Seventies or older. Okay. And they have a lot of equity in their homes. And we, the HOA and I am on the board, I admit, and I say we, because I'm on the board, require that they maintain their homes at a certain level.
Like we're gonna say, you need to paint your house. You need to take care of your landscaping or your roof starts to leak. Now the board doesn't tell you to do anything about that, but your home is telling you I need to be fixed. And I know for a fact 'cause I, I'm also [00:05:00] on the architectural committee here and I speak to people about repairs that they need to do or things, modifications and
they don't have the money. Right. But I know they have a ton of equity in their home and it's, it's been challenging 'cause I, my role is such, so I have to be very careful about what I do. So I'm kind of wanting to have you come in and be my spokesperson to say to people and educate them what is a reverse mortgage and how can we use it?
And. I want my veterans to understand this. In particular, my elderly aging veterans, veterans with disabilities, they didn't have when they bought the home, but they wanna stay in their home. And yes, the VA may pay for some of those things, and some of them may, they may not, because it's really more of something you want that will make your life better, but it's not really required as a.
A DA is that, yeah. A DA kind of thing. Right. So the first thing, I wanna just start with the [00:06:00] basics first, which is how do you qualify, what are the criteria to qualify for a reverse mortgage? Let's just start there. Okay. That's a, that's a great question. And it's very similar to a VA loan. Back in the day when they had problems with, the reverse, you didn't have to qualify.
There was no qualification. Basically you're over 62, here's your loan. Really? They didn't do, yeah. Yeah. They didn't have that residual income necessary. Like a VA loan. Okay. And VA loan, what they, what we do is we look at your income, we look at your debt, and you have to have some money left over after that.
So it's the same principle in that you need to now qualify for a reverse, and all you have to qualify for is. You have to pay your tax. You have, because you're still liable for your taxes and your insurance. And to get back to a little bit of what you said a minute ago about how can you lose your home, and [00:07:00] that's the, that's the number one question that I get is I'll lose my home. But if you, if you're fully paid for, if you have a mortgage or if you have a reverse, there's a really easy way to lose your home. Don't pay your property taxes. This is true. Don't pay your HOA, especially here in Arizona, you have to pay your HOA. They will come after you. Yes. And I see it time and time again.
But the qual, and let's touch on that for a second 'cause I actually know about it. 'cause the board here where I am had to, to attempt to foreclose on somebody's home because they were refusing to pay their HOA dues. Yep. It finally got their attention. And they're paying their dues now, but. Pay attention people, you could lose your home just for not paying HOA twos don't do that.
Yeah. Even if it's fully paid for. Exactly. Regardless of your, the situation of any, lien that you have or a mortgage, you can lose your home for not paying those, those two [00:08:00] things. And property taxes. Exactly. But, but as far as, qualifying, it's a lot easier to qualify for reverse because you don't have that payment.
You don't have a necessary payment. You can make a payment. That's the great thing. You can make optional payments. I have, clients right now that they will most likely pay into their mortgage. And, and I'll explain this in a minute. There's a line of credit with a reverse and, when someone comes in and they, they want this money, they don't have to take it all out.
They can just have a small loan amount and have this line of credit, and that line of credit grows over time. It grows at, it grows at the underlying rate of the mortgage. So if you're paying a 6%, which is what they are right now, reverse mortgage on the, on your, the money that you've borrowed, you're paying 6%.
Your line of credit grows at that too, and it's guaranteed to grow throughout the life. Of the, of the, of the borrower forever. So, so yeah. [00:09:00] Okay. Okay. And at what age can you start, potentially qualifying for a, reverse mortgage? Great question. The, the HECOM, which is the home equity conversion mortgage, which is the FHA product, which is, you know, 95% of what we do is the HECOM.
That's 62 and older. Okay. Okay. Now you can have a spouse that's below 62. They just can't be on the loan. Oh, okay. They can live in the house forever, so if the older, spouse passes, they can still live in it forever without a payment. It's just, they won't be able to utilize that line of credit that we discussed.
Okay. Okay. We do have other products that go down to age 55 as well, which I have another one. They, they're moving from Phoenix to Sun City. She's only 55. They're gonna do a purchase with a reverse, and we're using, we're utilizing that product, since she's below 62, and that's the one that makes [00:10:00] the, the most sense for them.
But typically 62 and older. Okay. Okay. And, when you are going to be buying a house using a reverse mortgage How much money do you have to put into the house? And I'm talking, we're talking buying right now. So let's talk buying and then we'll talk about home reverse mortgages on a home you own.
Okay? Okay. So buying a house with a reverse mortgage, what do you have to bring to the table? It depends on your age. The older you are, the less you will need to come in with. So with rates around, like I said, the 6% level, you're most likely looking at 60% depending on your age. Okay. 60. Yeah. 60 to 70% so you can bridge the gap.
So like, if you have someone, you're a realtor and you're showing them, you know, they sold their home, they have this, you know, $400,000 and you're gonna go, well, there's not a lot out there for 400,000 right now, but I [00:11:00] can show you a way to buy a $700,000 house or a $600,000 house and still achieve that goal of not having to make a mortgage payment.
I love that. So that's how that works. It's based on the, the age and the, underlying interest rate, interest rate of, of the mortgage. Okay. That's pretty much what it's based on, the amount of equity that you'll need. Okay. Okay. So let me, I'm gonna say this the way that I would tell my client. So say for instance, you and I were talking earlier about a client we both worked with and that's how I met you, miss Charlene.
She was wonderful. She actually lives just down the street from me, and she was selling her home in Phoenix and moving up here to the Verde Valley, and she and her son didn't want her to have a mortgage anymore. Because her house, I think, was free and clear. She'd lived there forever, and she, she was older, she was in her seventies, and I thought it made sense for her not to have a mortgage.
And so we found a house for her [00:12:00] and she took the money from the sale of her home and you, and she calculated how much she needed to put in. For the reverse mortgage and now she's in her home. She loves it. And she never has to make a house payment. No, she doesn't. So, and, and she has money. I'm pretty sure she put money aside, her son is a financial planner, so I'm sure he took money.
And put it aside for her. So she's getting extra money every month along with her social security and whatever. But she gets to live a very comfortable life, and do things that she wouldn't have been able to do if she was trying to buy that same house for that same, and have a mortgage for the balance that she did not bring to the table.
Yeah, yeah. And, yeah, so instead of her. Taking money out of her savings to bridge that gap and, you know, buy that nicer home. She can leave that there, let that grow. Take that out later if she does need it. But you know, the way the market's been [00:13:00] recently, you know, if you take out a hundred thousand dollars, you know, that could be when the market's up 10, that's $10,000.
You know, if the market's up 10%, 6%, 7%, so. She's letting that money work for her versus taking that and putting it in and into something that she, she can't, she can't use, you can't use your equity to go to the grocery store. Right? Right. You can't use it to pay for long-term care. You can't use it to make your home, you know, to age in place.
You know, I need to put ramps in, I need, I need to put, railings up, I need, you know, things like that. You can't do that unless you want to take out a, a, like a home equity loan and then you have a payment. Right now you gotta payment. So this allows you to do all that without Exactly. The, the, you know, they're optional payments.
So if she did want to make payments, she can. And the beauty of making a payment into your reverse is that now that goes into that line of credit that she can take out later. Right, right. So she was putting, you know, if she wanted to, if she had the extra money. [00:14:00] A lot of people do when they're still younger.
'cause they may still be working at 62. They can put a thousand, two, $3,000 a month into that mortgage, which now they can take out later and, and use and not have to worry about making that payment. I love it. I love it. I'm thinking in regards to my veterans that are needing and wanting to age in place.
They love their neighborhood. They love their neighbors. They like the house. It fits them. It's not too big, it's not too overwhelming. And, but they need to maybe make a roll in shower. They need to convert bathrooms into, bathtubs, into showers. Right. And like you said, ramps not so much here because we really don't have a lot of.
Steps, which is so weird. When I came here, I didn't know, my dogs didn't know what steps were. When I finally had a space where I had steps, they're like, what is that? I don't know. How, how do I do this? How do I do this? I'm so confused. But ramps in, just things to make, even. Maybe [00:15:00] doorway issues, things like that for wheelchairs.
Walkers and, even modifying if necessary kitchens and bathrooms for a wheelchair, like lowering, making things that you can rule to. Yeah. Yeah. Those are all things that. You are talking about and, and you have to have equity in your home quite a bit. And how much equity do you have to have in your home?
So say for instance, I still have a mortgage on my house, but I have, I'll say in a 500, I like round numbers, $500,000 house. I still have a small mortgage. How do I, how do I maybe make, convert all of that equity I do have and get rid of that mortgage into a home, reverse mortgage most of the, to get the money to do these modifications?
Most of the loans that I do are exactly, Judith, exactly your scenario where they have a [00:16:00] small mortgage. The new mortgage, the new reverse will pay off. That other mortgage, now you'll have a reverse, and in your case, you're, you're making payments right now, so you can cont continue to make payments on it if you want to.
I have clients that all they do is they just pay the interest. So their loan amount stays the same. The value of the home keeps going up and their line of credit keeps going up. During that time. So, you know, that's, like I said, that's exactly what I do most. We pay off that mortgage, get rid of that payment.
Now, and as I said earlier, cashflow is king in retirement. Now. You don't have that $2,000 a month payment, $1,500 a month payment. Now you can, I mean, think of the vacations that you could go on instead of Spending the money on that mortgage. And you know, one of my taglines is make memories and not mortgage payments.
I agree. I totally love that. And I think that, again, if you own your house free and clear, it's a [00:17:00] hundred percent equity you've got Right. If you own your house and it appraises for 50% of, what am I saying? So you have a $200,000 loan. Yep. And your house appraises for 500. How much, what is it gonna take?
What are they gonna be walking away with potentially? Well, with rates where they are right now, it would, like I said, it depends on their age. I haven't run any of the numbers, but they might be able to get a little bit of cash out. But the main thing is they'll be able to get rid of the mortgage. That mortgage payment, that $200,000 mortgage would be gone.
Okay? Yep. Yeah, and they're still responsible for any HOA and taxes and homeowners insurance. Those have to be paid. Right? They don't have to pay that principal interest payment. That it goes along with that normal forward, you know, the 30 year conventional mortgage. Mm-hmm. Mm-hmm. So if someone, is thinking I don't have the cash [00:18:00] to repair my roof, to paint it, to get new windows, just maintenance stuff, not even any kind of aging in place modifications.
And you own your house, I always think a hundred percent, 80 to a hundred percent is really your best options to maximize the reverse mortgage and actually have money you can walk a utilize. You know what I'm saying? Does that make sense? Yeah. You know, it's always better with more equity, but yeah, again, you know, the only other way to get money out of your home would be a normal heloc, which can go away at any time.
Well, number one, you're gonna have to make a payment. Number two, if you remember when we had, the financial crisis, if you had a, HELOC with, you know, there's a lot of companies out there that had 'em, they just took 'em away. So you have this available, maybe you didn't even use it. Now they're gone.
So, so they like took that. That can never happen. That can never happen with a reverse. It's [00:19:00] that line of credit is available until you sell your home. Okay. Okay. And I think that for my veterans, again, I live in an area, I mean the Verde Valley is very desirous for retirees. It's also desirous for families 'cause there's a ton of fun stuff to do outside.
And so people don't wanna leave their communities. And if we can help them understand home equities. Home, I mean, home equity, reverse mortgages. That would be great. And I know you showed me this cool tool. Let's maybe share that right now and you can kind of use that to explain in more graphic, you know, showing all of that.
Okay. how this works, what I, I set up a home that's worth, 478 thousand. What's the average home up there in Verde Valley? That's a good number. Verde Valley, I would say that's a pretty good number. So, I think you should be able to share the screen. Yes, go ahead. Whenever you're ready. Yeah. So this is how it would look.[00:20:00]
You have, so what we've done is, let me start here. So what we can do with this, we're gonna tap into your, the, your housing wealth, and we're gonna increase your cash flow. So you can use it for home improvements, vacations, whatever you wanna use it for. So this is basically. How it would work.
So on the home is worth right now, 478,000. The new loan, you're gonna have a small balance. The first year, your liquidity of this line of credit is 97,000. Back in the day, they just give you everything. Now they split that up and a lot of the times people never even touch the remainder of this line of credit.
Okay, so what will happen? I can show you over time. That's in five years. Okay, so when they're, now they're, they go from 73 to 78. Now look at how much that line of credit has grown [00:21:00] right here. So now they would have $247,000 available to them to take out if they need it, when they need it, without having to make that mortgage payment.
Okay? Because the house value has gone up. Just, yep. We won't be using 4%. You know, 4% is, BA is has been the average since day one. You're end of your ops, your downs. We'll probably never see the 15% that like we saw back in 2020 and 21. Oh God, no. 4% or the interest rates of that. Yeah. But 4% is a, is a, is a good number.
That's, that's, like I said, from the dawn of time, that's pretty much been the average. Okay. So now the home is worth 581. Yeah. And then I see, go ahead. Sorry. My credit went up a little bit. I mean, the borrowed went up a little. So that's, that's, that is growing at 6%. This is growing at 6% as well. Oh, so in 10 years it's now up to 348.[00:22:00]
The home is worth 707 and they still have 669,000. So let's just say, if you're wondering if they take something out, let's just say they take out of that 97,000, they take out 25, right? 25,000. Is what it would look like over time. So if they take it out that just that first year.
We learned a lot of things about reverse mortgages and broke some myths, and I hope that Craig is answering your questions. Let's continue on and see what happens as we age and how we can keep our homes. And again, I always am speaking to my veterans. How can we keep our homes and also leave some wealth maybe for our children?
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