• Question
  • reverse mortgage confusion - problems qualifying - debt to income ratio

    Asked by someone from Valley Cottage, NY on 4/25/2013

    , the husband am 65 years old, my wife is 63
    We own a house worth 625,000 in NY
    Mortgage balance is 345,000

    We want to retire to Florida.
    We want to buy a house in Florida with a reverse mortgage to keep our living expenses low.
    We found a house for $385,000. A reverse mtg lender said we could get 240,000 but pay 20,000 in fees and net 220. I would have to put up the difference of 165,000.
    I sold my boat for 140,000 this week plus I have another 90,000 in cash. I can rent my home here for 4300.00 I am paying 3300.00. I would net 1000.00 a month towards my living expenses in Florida.
    The lender told me I would be charged the 3300.00 debt to pay the mortgage on the NY house but no credit for the 4300.00 rent. The taxes and insurance in Florida would be $484.00 per month.
    I was then told that there is a debt to income ratio of 43%.
    My income in retirement would be, 2000.00 social security,
    1800.00 rent income in Florida
    500.00 sale of business income
    1000.00 net income from house in NY
    Total 5100.00 month
    I was told by this lender that the underwriters would not credit me any rent from my big house but would use the 3300.00 monthly payment as a liability.
    I would have that 3300.00 as an expense, and 484.00 a month expenses in Florida. Total for both would be 3784.00 a month. This being 43% of necessary income I would have to have income of $8800.00 a month or 105,600 yearly income to qualify. My real income would be 4300 a month without the net rent from NY. I had the NY house on the market for a year and no buyers, I have a couple who want to buy it on a land contract but I was told the HUD people would not recognize the sale that way, so I cant use the 160,000 down as liquid assets until it is aged and the mortgage payment I would receive can’t be included as income, but again, I would be penalized the 3300.00 mortgage payment I make as that same liability screwing up my debt to income ratio the same as mentioned before.

    How can I make this purchase in Florida happen with the circumstances I have to work with?

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  • Categories: Paying Off Debt, Retirement Planning, Budgeting, Mortgage Refinancing, Downsizing/Relocation, Reverse Mortgages, Qualifying, Housing

Answers

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  • You home must be rented for 12 months in order to be able to get away from the problem you're having. However, the 43% DTI isn't a HUD requirement, each Lender uses a different number ... my bank uses 50%. If you're at 43 or 44 or 45 and it isn't working, talk to another Lender.

    HUD requires homeowners who don't have their homes rented for the past 12 months to be able to pay all the expenses on both properties. You'll need to be able to pay for all the homeowners insurance, property taxes (and sometimes utilities - depends on the Lender) for both properties, and the mortgage on the first property.

    You still have a legal obligation with the property if it's sold with a Land Contract, or Lease/Option. To separate yourself from that liability, you'd need to remove yourself from Title completely, which in your case would mean selling your existing home.

  • Login to rate this answer:   Answered on 4/26/2013
**All above answers are provided as general information only. No warranty is made regarding the fitness or accuracy of the information provided in this answer. You should seek advice from a licensed CPA, attorney or CERTIFIED FINANCIAL PLANNER™ as to your unique financial situation.