Creative mortgages can help elderly parents keep their homes

Do your parents want to stay in their home? Or maybe they want to buy a home to get away from the rent trap.

Thinking outside the proverbial mortgage underwriting box might just get them there.

There are plenty of parents with the physical and mental prowess to live on their own. Either the parents or their children or the combination of both may be financially capable of qualifying for the plethora of little-known mortgages available in the marketplace. Here are some options.

Reverse mortgages: There are 27 million households in the U.S. with someone who is 62 or older, according to Jon McCue, director of client relations at the National Reverse Mortgage Association.

Can you trust the bank to keep your home equity line-of-credit, or HELOC, open for a number of years? Banks famously and notoriously froze and cancelled home-equity lines-of-credit during the mortgage meltdown days of the Great Recession.

Let’s say grandma and grandpa are equity rich and house poor or will eventually tap out of their retirement savings. They could get an FHA reverse mortgage with a credit line that grows larger as they age. Even if home values decrease, the line of credit continues to grow. You never have to pay a penny back on these negatively amortizing mortgages.

The financial assessment qualifying bar is relatively low. They can take out the line-of-credit now and not use it until they need it. This ensures they have access to this type of loan since they may not qualify later if their finances diminish, said McCue.

The line amount is based on the youngest borrower’s date of birth. At least one borrower must be 62 or older. Unlike a bank HELOC that might typically be without costs, this never-cancel HELOC (until you die or move out) will cost 2% for upfront FHA mortgage insurance of any initial draw plus points, escrow, title and the like, McCue said.

Parent loans: How about co-signing for your folks if they can’t otherwise qualify? Maybe they want to live on their own. Or what about helping mom and pop buy a group home for them and their friends?

Fannie Mae calls this a parent loan. As long as the parents can’t qualify on their own, they can get owner-occupied mortgage rates with as little as 5% down.

Jumbos: Sometimes the Fannie Mae loan limits don’t go high enough. Sometimes there are mortgage qualifying challenges that don’t allow for Fannie Mae type mortgages. Calling mortgages above those limits jumbo loans implies they’re large.

But there are plenty of jumbo investors who offer more practical underwriting for unique circumstances. For example, bank statement loans.

Fannie just says “no” when it comes to adding up bank statement deposits to calculate income. Many a lender offers jumbos and other formulas for boosting mom and dad’s income outside the traditional underwriting box.

While they are not named parent loans, a few jumbo lenders allow non-occupant co-borrowers for mortgage qualifying purposes, just like Fannie Mae.

Let’s talk about being in the chips even with weak tax returns. One jumbo lender allows the kids to help qualify on a bank-statement mortgage to calculate income so long as at least one person (parent or child) is self-employed.

Los Angeles and Orange County jumbos decreased in 2018, but increased in 2019 and 2020, according to Attom Data Solutions. The numbers fluctuated up and down in San Bernardino County and dropped for four straight years in Riverside County.

For higher-priced homes with larger mortgages, my detective work found just one lender who allows adult children to co-sign a Fannie Mae first and a traditional HELOC “piggy-back” to get around higher jumbo mortgage rates. You’ll need to put at least 10.1% down for this mortgage.

Creative financing is the name of the game. Ask. Don’t assume mom and dad are stuck in a situation that they are trying to improve upon.

Freddie Mac rate news: The 30-year fixed rate averaged 2.98%, 1 basis point higher than last week. The 15-year fixed rate averaged 2.31%, 2 basis points higher than last week.

The Mortgage Bankers Association reported a 2.5% decrease in mortgage application volume from the previous week.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $548,250 loan, last year’s payment was $74 more than this week’s payment of $2,306.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with 1-point cost: A 30-year FHA at 2.25%, a 15-year conventional at 2%, a 30-year conventional at 2.625%, a 15-year conventional high-balance ($548,251 to $822,375) at 2.25%, a 30-year conventional high-balance at 2.875% and a jumbo 30-year fixed at 3.125%.

Eye catcher loan of the week: A no-cost 30-year fixed-rate at 3%.

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.

Source: Orange County Register