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Posted by Bobbi in CT on 5/13/05 2:28pm
Not an attorney. Not giving legal advice or recommending this loan product.
In the hands of the right attorney, this can be an excellent estate planning tool. Not like the early 1990s version - no balloon (150 year term for age of youngest borrower) and not always treated as an annuity. For estate planning and tax purposes, the cash out is not treated as "income". Upside, no income requirements, $$ can be taken in multiple ways (including paying off existing mortgage plus line of credit for remaining funds) can be a good tool for quality of life and Medicaid planning (done correctly) plus if the house isn't worth the unpaid debt at termination then lender does not go after estate. Also, heirs have ability to keep house and refinance to pay off loan or sell - depending on value of home at death of surviving borrower, may be little or no equity left. Heirs may not get as Big a Buck as they want from dead parents.
There are multiple products. The high-value ones have no "cap". The products through HUD have a maximum loan cap based on state and county the home is in. One of the HUD products does have high up-front fees. Also, feds have a cap on total amount HUD will loan nationwide - cap just recently increased. Anyone applying for these must go through a 20-30 minute "education", which can include children, PoA, social service worker, and anyone else borrowers want with them during "education".
LONG time at the table. Only ones I have seen in CT have been handled through attorneys.
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