John F. Kennedy pointed out that the word “crisis” in Chinese is made up of two characters in their alphabet. The first letter is the symbol for danger, while second represents opportunity. When it comes to real estate it seems that we are always in a crisis, especially in today’s market. Many folks can’t qualify for mortgages due to income issues, lack of down payment, less than perfect credit, or lower than expected home values. It seems that only the perfect applicant, who is otherwise over qualified, can obtain a loan. And unfortunately, many seniors who are wishing to downsize their home, or are now in a financial crunch due to poor performance with their retirement accounts, are struggling to keep their homes.
Fortunately there is the Reverse Mortgage, which allows seniors, 62 and older, who own their primary residence and have significant equity in it, to actually receive money each month, as opposed to having to pay money. However, there are still many seniors who are now stalling from pulling the trigger on a Reverse Mortgage due to the fact that their house is not worth as much as it was a year to two years ago. Their rational is that they want their homes to be worth more, thus having the ability to pull more funds out of them. I would have to say that these seniors are truly in a “crisis”. And worse yet they are being paralyzed by it, thus making it worse.
If there is a financial need, and a reverse mortgage provides a solution, then you have the true definition of a crisis, and the focus should be on the opportunity, rather than the problem. I would imagine the counter argument from many would be that they are not maximizing their equity. OK, I will consent to that point. But what is the cost of your personal financial sacrifice while you wait for the market to come back up? How much of your own personal savings did you dig into? Did you have to go back to work? And in a worst case scenario; what will you do if they stop issuing reverse mortgages a year from now, when you decided to apply for one? If you don’t think it will happen, talk to your banker about all the programs they had a year ago verse what they have today. Personally, I believe they will be around for a long time, but the conditions will constantly be changing, thus you may qualify for 70% of your homes value today, which for example is $100,000. But if they cut back the funding to 60% of the value a year from now, and your home goes up 20%, which would be a huge increase, you would only make $2,000 more than if you took the 70% of the lesser value.
The bottom line is that crises and opportunities present themselves when its best for them, and not necessarily when we want them to, or its advantageous for us. So if Mr. Reverse Mortgage Opportunity comes knocking on your door, don’t not let him in because the house is a mess; if he has to come back next year, his expectations may be higher.
Related posts:
Quote: “The bottom line is that crises and opportunities present themselves when its best for them, and not necessarily when we want them to, or its advantageous for us.”
The possibility of danger rising is as big as toning down. We don’t know what the future has in store for us, so it’s still better to harvest something than lamenting our failed seeds.
I learned a lot from this article and will definitely keep it in my favoritse. Thanks for the effort you took to explain this subject so deeply. I look forward to future posts.