Tag Archives: HECM for Purchase

Reasons to obtain a Reverse Mortgage

Posted on by

  • Reverse mortgage provides funds to enjoy retirement and have funds for future

I often hear that people think the reverse mortgage is only for those with an immediate need on their current home. While this is one reason one obtains a reverse mortgage, there are five general reasons to obtain a reverse mortgage. Let’s explore all of these.

  • Needs based or improving cash flow: Need funds immediately for covering living expenses or wants to eliminate the current mortgage payments.

Lisa and George had a small mortgage remaining on their home. It was difficult to make the monthly payments so they obtained a reverse mortgage to eliminate the payments. There were remaining proceeds that they left in a Line of credit for future use. And they are still paying their property taxes and insurance.

Joe needed a hearing aide but couldn’t afford it with his Social Security benefits. Rather than taking money from his savings, he obtained a reverse mortgage. He also used some of the money to put new siding on his home.

  • Maintaining lifestyle: Having funds for travel, buying a car, purchasing vacation home; fulfilling dreams or meeting goals.
To fulfill dream of traveling Helen obtained a reverse mortgage

Helen was struggling to meet her living expenses with just her Social Security Benefits. She also had always dreamed of traveling. The reverse mortgage provided the extra cash she needed and she was able to fulfill her dreams of traveling

Bob’s wife passed away so her Social Security was no longer received. To replace the 2nd Social Security check his financial advisor suggested a reverse mortgage so he could stay in his home and maintain his lifestyle. The reverse mortgage paid off his current conventional mortgage and eliminated his mortgage payments – this improved his cash flow. Then Monthly Draws were set up to add the extra money he needed each month to maintain his lifestyle. Additionally funds were left in the line of credit for future needs.

  • Protecting or delaying draws from other investments: Using the reverse mortgage to tap home equity rather than accessing other investments or retirement funds that may have penalties or are taxable; let the investments or retirement funds grow so more retirement funds are available later in one’s life; use the home equity so other investments can be left as the inheritance.

Dorothy closed on her Home Equity Conversion Mortgage (HECM) reverse mortgage as a tool to strategically manage her assets and the benefits she has received from her reverse mortgage. She’s used the funds for home repairs and travel, and hasn’t had to use her investments.

Reverse mortgage provides funds to enjoy retirement and have funds for future

In their mid-70’s, Pat and Mary planned for their retirement. But as their life changed they found there wasn’t enough money to last through the end of the month. With the reverse mortgage in place providing monthly cash flow and a line of credit for other needs, Pat and Mary’s retirement funds may be protected for their future. They are living their retirement years with a good plan along with funds for their current needs. Now they have more money at the end of the month – what a way to live in retirement!

Ray used a reverse mortgage on his primary residence to build a new lake home. Using the reverse mortgage for this purpose meant he didn’t have to tap into other retirement investments, yet created a new investment. His plan is in 10 years to start using his other retirement funds.

  • Planning for financial or long-term care needs (Standby reverse mortgage): Taking the reverse mortgage at a younger age then leaving in the line of credit, which grows to have funds to draw from in the future when “life happens.”

Charles and Sharon both in their early 60’s used the reverse mortgage to pay off their conventional mortgage. Since they were still working, they continued to make payments on their reverse mortgage. Their plan is to pay down the reverse mortgage loan balance and increase their line of credit so it grows for their future long-term care needs.

  • Purchasing a new home: Whether downsizing, moving closer to family or buying a dream home or investment property, the reverse mortgage can be used for the financing.
Purchase a new one-level home to meet changing health needs

Richard and Lou needed a one-level home to eliminate stairs that were getting hard to navigate. Instead of using conventional financing or paying cash, they used the HECM for Purchase (H4P) Adjustable Rate. Using cash from the sale and the H4P, they were able to purchase their dream home at a higher value than paying cash would have allowed, have funds for moving expenses and still have funds in a line of credit.

Mike and Carol decided they needed a one-level home to fit their changing health needs, they used the Home Equity Conversion Mortgage HECM for Purchase to purchase their new home instead of using conventional financing. This benefitted their cash flow and meant they didn’t have to tap other retirement funds.

Jim and Paula used the fixed rate reverse mortgage to purchase a new home closer to their children.

Would you like to explore a reverse mortgage for your situation? Contact us if you are in Minnesota.  As your local broker, we work with several lenders and provide free information and facts with no obligation, meeting in person whenever possible.

For other states, contact your local reverse mortgage specialist who is a broker, one who works with several lenders, has their Broker License/NMLS and preferably holds the Certified Reverse Mortgage Professional (CRMP) designation.

© 2019 Beth Paterson, CRMP, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link: https://wp.me/p4EUZQ-2AP

Related Articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Free Webinar on using a HECM for Purchase for your older home buyer’s

Posted on by





Using Reverse Mortgage to Purchase New HomeThe National Reverse Mortgage Lender Association (NRMLA) is hosting a free webinar on using a reverse mortgage to purchase a new home during the 3rd annual Reverse Mortgage Education Week.  Reverse Mortgage Education Week is dedicated to teaching more people about the benefits of reverse mortgages, how they work, and how loan proceeds can be used to support aging in place.

Typically older homebuyers aged 62 and older, who don’t usually qualify for a conventional mortgage, or want a monthly mortgage payment, would need to pay cash for their new home.  However, there is another option, FHA’s Home Equity Conversion Mortgage (HECM) for purchase, H4P.

Seniors have used the H4P to purchase their dream home, downsize to a home more convenient for their changing health needs and move closer to their children.

Richard and Lou needed a one-level home to eliminate stairs that were getting hard to navigate.  Instead of using conventional financing or paying cash, they used the HECM for Purchase (H4P) Adjustable Rate.  Using cash from the sale and the H4P, they were able to purchase their dream home at a higher value than paying cash would have allowed, have funds for moving expenses and still have funds in a line of credit.

Join us for “Serving the Boomer Market: Guidance for Meeting Older Buyers Needs with HECM for Purchase,” an informational webinar for Realtors and agents who work with older buyers. NRMLA CRMPs Chris Bruser and Christina Harmes, Realtor Scott Degnan, and Scott Owens the General Manager of an active adult community, will explain the process for using a reverse mortgage to purchase a home and provide examples of how buyers, and sellers, can benefit from H4P.

What: Free Webinar: Serving the Boomer Market: Guidance for Meeting Older Buyers’ Needs with HECM for Purchase
When: April 24, 2018, 1:00 – 2:00 PM ET
Registration: http://bit.ly/2GxO56u

For more background on reverse mortgage loans and HECM for Purchase, take a look at these resources and media coverage that shows how the responsible use of a reverse mortgage can enhance a retirement plan:

NRMLA’s  Reverse Mortgage Education Week runs from April 23rd-27th. Check here for the calendar of all webinars.

If you’d like to learn how to utilize a reverse mortgage to purchase a new home, contact us if you are in Minnesota.  As your local broker, we work with several lenders and provide free information and facts with no obligation, meeting in person whenever possible.

For other states, contact your local reverse mortgage specialist who is a broker, one who works with several lenders, has their Broker License/NMLS and preferably holds the Certified Reverse Mortgage Professional (CRMP) designation.

© 2018 Beth Paterson, CRMP, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety and without modifications and includes the contact information, copyright information and the following link: https://wp.me/p4EUZQ-1G5

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

 





How Can A Reverse Mortgage Be Used In One’s Financial Plan?

Posted on by





Using Reverse Mortgage for financial planningIn a perfect world, ideally it is to not have debt of any kind including no mortgages, having a huge retirement portfolio to cover one’s lifestyle and long-term care costs.

However, in the real world, many who have thought they have saved for retirement find that when “life happens” they use those funds quickly. The reverse mortgage is a tool for planning for retirement and long-term care costs as well as more immediate needs. This way they have a plan and funds for when “life happens.”

Financial advisors, planners, insurance agents, wealth managers, estate planners, tax advisors and other financial professionals are realizing the value of using one’s home equity, especially the HECM reverse mortgage, to be part of one’s plan. There is even some discussion on the importance discussing the reverse mortgage as an option for one’s retirement plan by professors of finance at various universities.

Here are some ways a reverse mortgage could be utilized as part of one’s retirement plan.

Protect other investments/Hedge against longevity risk – With the reverse mortgage in place and having cash available, borrowers’ can protect their other investments and retirement portfolios to hedge against longevity risk if those decrease or not have to draw on those, especially in a down market. They can still have cash flow yet save the investments for future use or use those funds for an inheritance.

Eliminate current mortgage payment – By using the reverse mortgage to pay off the current mortgage it allows one to improve their cash flow and have more flexibility for their retirement planning. (Borrowers are still responsible for paying property taxes and hazard insurance.)

Payment flexibility – Payments on the reverse mortgage are not required. However borrowers can choose to make payments in an amount they choose and when they choose. If they use the reverse mortgage to pay off their current mortgage and then continue making payments, the payment will reduce the loan balance and be applied to their line of credit. The funds in the line of credit will grow, meaning they will have funds in the future to re-borrow without refinancing and having to pay closing costs again.

Another big plus with the payment flexibility is if one can’t make a payment because they are no longer working or have a medical expense, they will have better cash flow management.

Use Reverse Mortgage for Long-term careFunds for emergencies and/or long-term care – The HECM Adjustable Rate has a line of credit option with a growth rate. Taking out the reverse mortgage at an earlier age and leaving the line of credit to grow will provide more funds for emergencies and/or later when it’s likely they will need long-term care.

Purchase a new home – Rather than using cash, other retirement funds or a conventional mortgage, the HECM reverse mortgage for purchase (H4P) offers a stronger strategy. See page 19 for more details.

Proceeds are not taxable income – Because it is a loan, the reverse mortgage proceeds are not considered income and therefore not taxable. Therefore one can draw from the line of credit and not have the tax liability unlike some other retirement investments may have.

Continue working but have funds when not able to – Doing the reverse mortgage with a line of credit now could mean more funds available in the future. Borrowers can choose to continue working but when they can’t work anymore, or choose not to, they could have funds to replace their income.

While working they could choose to make payments on their reverse mortgage but then stop making payments when no longer working and take monthly draws or draws as needed to replace their work income.

Social Security claims – With the reverse mortgage in place the proceeds could replace the Social Security income when one spouse passes and they lost the 2nd Social Security income. They could set up receiving monthly payments so their cash flow continues allowing them to maintain their lifestyle.

One could use reverse mortgage proceeds to delay taking Social Security as part of their plan meaning they would increase their monthly Social Security benefits. The CFPB has cautioned about this strategy. Borrowers should consult with their financial advisors to determine if this would be a strategy for them and what is best for their situation.

Available funds even with lower home value – Because the funds are guaranteed to be available based on the home value at the time of closing (FHA insurance benefit), if home values decline (remember 2008?), the reverse mortgage borrower could still have access to more funds than the value of the home and the line of credit will continue to grow even if the home value declines.

With reverse mortgage don't have to rely on childrenNot depend on children – If one needs addition funds for maintaining lifestyle, medical expenses, long-term care, etc, the reverse mortgage could provide funds so they don’t have to rely on their children.

If children want to tap their financial portfolio to help care for their parents, a reverse mortgage on the parents home may be a better plan; providing funds for the parents needs and preserving the child’s portfolio for their own future.

Long-term Care Insurance – One may not qualify for long-term care insurance or afford the premiums so the reverse mortgage line of credit could act as an “insurance” to cover the long-care needs.

If one does qualify for long-term care insurance, the reverse mortgage line of credit could provide funds allowing a higher long-term care insurance deductible and a longer waiting period before drawing from the long-term care insurance.

Payoff spouse in a divorce – The reverse mortgage can be used to pay off a spouse going through a divorce, allowing one spouse to remain in the home.

Use in probate – In the case of the death of a parent, the reverse mortgage could be used to pay off a sibling or siblings so one can remain in the home or purchase the family home. This is beneficial when one child has been living in the home and taking care of the parent(s), and wants to remain in the home.

I am not a financial planner/advisor, accounting advisor/CPA or an attorney. This information is provided as ideas to use for one’s plan. One should consult with their financial, accounting and/or legal advisor on what works for their situation.

If you’d like to improve your retirement cash flow now or for the future, contact us if you are in Minnesota.  As your local broker, we work with several lenders and provide free information and facts with no obligation, meeting in person whenever possible.

For other states, contact your local reverse mortgage specialist who is a broker, one who works with several lenders, has their Broker License/NMLS and preferably holds the Certified Reverse Mortgage Professional (CRMP) designation.

© 2018 Beth Paterson, CRMP, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety and without modifications and includes the contact information, copyright information and the following link:  https://wp.me/p4EUZQ-1DT

Related Articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.





Hearing these statements are reasons to do a reverse mortgage

Posted on by





Have you heard any of these statements from a homeowner 62 and older?  They may find their solution is a reverse mortgage and they should be encouraged to get the facts to see if the FHA insured Home Equity Mortgage (HECM) is right for their situation.

  • “I want to stay in my home.”Reasons to do a reverse mortgage
  • “My only option is to move.”
  • “I’m planning for retirement.”
  • “I’m not sure how I’m going to afford any potential long-term care costs.”
  • “I can’t afford home health care.”
  • “We can’t afford a mortgage payment.”
  • “We can’t afford to make home repairs or modifications.”
  • “I need money but drawing from my retirement plans have penalties.”
  • “Not enough money at the end of the Social Security check.”
  • “I need help with keeping up my home with housekeeping or yard work.”
  • “I’m downsizing and moving.” or “I’m moving closer to my children.”
  • They can’t afford the little extras that would help them maintain and enjoy their life.
  • They want Security, Independence, Dignity, and Control which they are missing in some way now.

There statements fit into the 5 general reasons to do a reverse mortgage:

  1. Needs based: need funds immediately for covering living expenses
  2. Maintaining lifestyle:  having funds for travel, buying a car, purchasing vacation home
  3. Protecting or delaying draws from other investments:  Using the reverse mortgage to tap home equity rather than accessing other investments or retirement funds that may have penalties or are taxable; let the investments or retirement funds grow so more retirement funds are available later in one’s life; use the home equity so other investments can be left as the inheritance
  4. Planning for long-term care needs (Standby reverse mortgage): Taking the reverse mortgage at a younger age then leaving in the line of credit which grows to have funds to draw from in the future when “life happens”
  5. Purchasing a new home:  Whether downsizing, moving closer to family or buying a dream home, the reverse mortgage can be used for financing.

A reverse mortgage is a mortgage with special terms for seniors 62 and older.  Some of the differences from a traditional mortgage include income and credit scores are not considered to qualify for the interest rate and monthly mortgage payments are not required.  Borrowers are responsible for paying property taxes, insurance, maintaining the home and abiding by the terms of the loan.  Borrowers must meet HUD’s financial assessment qualifications to demonstrate ability and willingness to pay property taxes and insurance into the future.

Rather than a 15 or 30 year term, the loan is due and payable when the home is no longer the primary residence of the borrowers or on the 150th birthday of the youngest borrower. In addition, the reverse mortgage is non-recourse, which means if the loan balance is higher than what the home can be sold for there is no personal liability to the borrower or their heirs.  If the home is sold for more than the loan balance, the borrower or their heirs receive the difference.  The most common and only reverse mortgage available in Minnesota is the FHA HUD insured Home Equity Conversion Mortgage or HECM.

Options are available!  When you hear any of the above statements remember a reverse mortgage may be the option that is the most beneficial to their situation.

© 2012-2016 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:   http://wp.me/p4EUZQ-1m5

Related articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.





We Were Able To Use A Reverse Mortgage To Purchase Our Beautiful New Home

Posted on by





HECM for Purchase allows one to buy a new home with a reverse mortgage“Without the help and knowledge of Beth Paterson who first told me about the reverse mortgage to buy I would never have been able to get our beautiful new townhome, which my wife needs because of her mobility to navigate a lot of stairs.”

This was comment I received from Mike after they closed on their HECM for Purchase (H4P) and moved into their new home.

Mike and I had originally talked about 6 years ago when he and Carol were considering a reverse mortgage on the home they had lived for many years.  For various reasons they decided to wait.  We did talk periodically and I kept them informed of product changes.  When Carol was having some issues navigating the stairs they had in their home they decided that it would be better to find a home without all the stairs.  This is when I introduced them to option of using use the reverse mortgage to purchase the new home.

Their search ensued until they found a beautiful townhome not too far from their current home in Minnesota but easier for Carol to navigate now and into the future.  Still interested in the idea of not having a mortgage payment, we met and discussed the H4P so they would have an understanding of the program.  We also met with their real estate agent and the builder to educate them on how this unique option worked.

Like it did for Mike and Carol, the HECM Home Purchase Program provides financing to those who desire to re-size, move closer to children or purchase a new home without having mortgage payments.

The advantages of using a reverse mortgage to purchase a home:

  • There are no monthly mortgage payments required (borrowers are responsible for paying property taxes, insurance and maintain the property).
  • Preserves cash savings and investments rather than liquidating savings and investments to pay all cash for the home purchase.
  • It is a way to leverage funds to make it possible to purchase a higher valued home.
  • Provides financing so one can re-size to a lower maintenance home, one-level home, a home more suitable for aging in place, move to be closer to children or even purchase one’s “dream home.”

Keep in mind, a reverse mortgage is a mortgage but has special terms for those 62 and older.  It offers the most flexibility on how the funds are received and when the loan needs to be repaid.

The steps to do purchase a home with the reverse mortgage are the same as with the regular reverse mortgage.  However there are some unique points for this beneficial home purchase option that one needs to be aware.

Eligibility requirements:

  • All borrowers going on title must be 62 years old or older.
  • The properties that qualify must be residential and include:
    • single family
    • 1 to 4 family dwelling units if the borrower/owner resides in one unit
    • FHA approved condos or manufactured homes that meet HUD’s standards
  • To determine how much is available from the reverse mortgage for the purchase, we run our calculations on the lessor of the final appraised value, sales price, or FHA mortgage limit for a one-family residence (currently $625,500).

For example, if the purchase price is $250,000 and the appraised value is $275,000, we would use the $250,000.  Or if the purchase price is $285,000 and the appraised value is $275,000, we use the $275,000.

  • The proceeds available to the borrower are calculated the same way as with any reverse mortgage, having all the closing costs (origination and FHA MIP, reports, title and escrow/settlement fees) included in the loan so there are no out of pocket expenses other than the appraisal and potentially any inspections.  The “Net Principal Limit” is the amount available to the borrower after costs.

Note: When I’m working with those exploring homes, I run several calculations at various possible home values so when the borrower and their real estate agent are looking for a home, they will have an idea of the home value and the cash the borrower will need at close.

  • The borrower will need to have the difference between the Net Principal Limit and the purchase price available.  For example:

If the purchase price and the appraised value is $275,000 and the Net Principal Limit is $165,000, the borrower will need $110,000* to purchase the $275,000 home.

Rather than using all reverse mortgage funds, more personal funds can be used for the purchase so the reverse mortgage can be set up with a line of credit option. (HECM LIBOR option only; the fixed rate requires you to pull all available funds at close and does not offer the line of credit option.)

 For example, if a borrower has $150,000 in funds they want to use to purchase the same $275,000 home, they could combine their $100,000 with the $165,000 from the reverse mortgage proceeds to purchase the home and then have $40,000 in their reverse mortgage line of credit.

  • The funds the borrowers use must be from cash on hand, cash from the sale, liquidation of assets or Gift funds (must meet HUD’s approved funding sources and source of funds needs to be documented).   

The additional funds cannot come from Builder incentives, Seller financing, Seller contributions or concessions, any person or entity that financially benefits from the transaction or third party that is directly or indirectly reimbursed by any of the parties benefitting in the transaction or Credit Card advances, sweat equity, trade equity, rent credit.  Purchasers cannot use loan discount points, interest rate buy downs, closing cost down payment assistance, gifts or personal property given by the seller or any other party involved in the transaction.  Seller can pay their share of taxes and Home Owner Association fees if applicable.           

  • The borrower may choose any of the options/interest rate options:
    • HECM Adjustable
    • HECM Fixed

For calculation purposes our rates change every week.  The rate cannot be confirmed until the week of closing.  However, on the adjustable rate LIBOR we have a Principal Limit Rate Lock which means we can use the rate at the time of application or closing, whichever is the most favorable to the borrower.  For the process of planning how much will be available to the borrower, I initially use the rate and amount of the program chosen at the time of application.

  • Seller has to be the owner of record for 90 days prior to the date of the sales contract (based on when recorded). (This is to protect against property flipping.)
  • Prior to completing an application HUD requires the Certification of Occupancy.
  • The Original Purchase Contract or Certified Copy of the Purchase Contract is needed for underwriting.
  • Counseling must be completed by a HUD approved HECM counseling agency that has been approved to provide reverse mortgage counseling. Minnesota requires that the counselor be located in Minnesota. We will provide a you a list of HUD approved counselors.
  • The property must be livable at the time of closing. Any required repairs must be completed prior to closing by the seller – no repairs or repair set asides are allowed.
  • Funds are provided at closing, as there is no rescission period.
  • The new property has to be the primary residence and occupancy must happen within 60 days of closing.
  • One’s existing home may be retained as rental property or if purchasing current home prior to the sale of existing home, income verification will be required to document the ability to maintain both properties. (This is prevent the practice of “buy and bail.”)

Using the reverse mortgage to finance the purchase of your new home may be your solution to meeting your goals without having a monthly mortgage payment.**

Like Mike and Carol, if you or someone you know are 62 or older and want to…

Happy HECM for Purchase Reverse Mortgage Borrowers…downsize
…move to a townhome so they don’t have to do the yard work
…move to a one-level home
…move closer to their children
…move to a larger home to have space for when their family comes to visit

The HECM for Purchase program may be your financing option!

*You may also need funds for property taxes, initial hazard insurance premium, home owner association dues, etc.
**Borrowers are still responsible for paying property taxes, hazard insurance, maintaining the home and abiding by the terms of the loan.

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:

– See more at: http://rmsidac.com/beths-reverse-mortgage-blog/#sthash.3C3ljz4F.dpuf

© 2014 Beth Paterson http://rmsidac.com/beths-reverse-mortgage-blog/ 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:

– See more at: http://rmsidac.com/beths-reverse-mortgage-blog/#sthash.3C3ljz4F.dpuf

© 2014 Beth Paterson, CRMP, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link: http://wp.me/p4EUZQ-18l

Related articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

This site or information provided is not from, or approved by, HUD or FHA or any US Government Agency or Department. – See more at: http://rmsidac.com/#sthash.vv8MiYI8.dpuf
This site or information provided is not from, or approved by, HUD or FHA or any US Government Agency or Department. – See more at: http://rmsidac.com/#sthash.7ZcOk1EU.dpuf

© 2014 Beth Paterson http://rmsidac.com/beths-reverse-mortgage-blog/ 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:

– See more at: http://rmsidac.com/beths-reverse-mortgage-blog/#sthash.3C3ljz4F.dpuf





Seniors, want to purchase your new home with no monthly mortgage payments? Use A Reverse Mortgage.

Posted on by





Using a reverse mortgage to downsizeAre you over 62 and want to downsize?  Move to a townhome so you don’t have to do the yard work?  Move to a one-level home?  Move closer to your children?  Move to a larger home to have space for when the family comes to visit?  Do you want to move to your new home but don’t want to have monthly mortgage payments?  The HECM for Purchase program may be your financing option.

The FHA insured reverse mortgage program that allows those 62 and older to purchase their new home and then not have monthly mortgage payments is called  HECM (Home Equity Conversion Mortgage) for Purchase.  The features and terms as well as the steps for the HECM for Purchase are the same as with the regular reverse mortgage.  However, because it is a unique process, there are a few points you and all parties involved need to be aware of to make it a smooth transaction.

  • The properties that qualify for the HECM Home Purchase include single family, 1 to 4 family dwelling units if the borrower/owner resides in one unit, FHA approved condos, manufactured homes that meet HUD’s standards.
  • To run our calculations we use the lessor of the final appraised value, sales price, or FHA mortgage limit for a one-family residence.
    • If the purchase price is $190,000 and the appraised value is $200,000, we would use the $190,000.  Or if the purchase price is $210,000 and the appraised value is $200,000, we use the $200,000.
  • The proceeds available to the borrower are calculated the same way as with any reverse mortgage, having all the closing costs (origination and FHA MIP, reports, title and escrow/settlement fees) included in the loan so there are no out of pocket expenses other than the appraisal and potentially any inspections.  The Net Principal Limit is the amount available to the borrower.
    • Note: When I’m working with those exploring homes, I run several calculations at various possible home values so when the borrower and their real estate agent are looking for a home, they will have an idea of the home value and the cash the borrower will need at close.
  • The borrower will need to have the difference between the Net Principal Limit (loan amount) and the purchase price available.  For example:
    • If the purchase price and the appraised value is $200,000 and the Net Principal limit is $124,000, the borrower will need $76,000* to purchase the $200,000 home.
    •  If a borrower has $100,000 in funds they want to use to purchase the same $200,000 home, they could combine their $100,000 with the $100,000 from the reverse mortgage proceeds to purchase the home and then have $24,000 in their reverse mortgage line of credit when using the adjustable rate, LIBOR, program.  (The fixed rate requires you to pull all available funds at close.)
      • Borrowers must use cash on hand, cash from the sale, liquidation of assets or Gift funds (must meet HUD’s approved funding sources and source of funds needs to be documented).
        • The additional funds cannot come from Builder incentives, Seller financing, Seller contributions or concessions, any person or entity that financially benefits from the transaction or third party that is directly or indirectly reimbursed by any of the parties benefitting in the transaction or Credit Card advances, sweat equity, trade equity, rent credit.  Cannot use loan discount points, interest rate buy downs, closing cost down payment assistance, gifts or personal property given by the seller or any other party involved in the transaction.  Seller can pay their share of taxes and Home Owner Association fees if applicable.
  • The borrower may choose any of the options/interest rate options:
    • HECM LIBOR
    • HECM Fixed Saver
      • For calculation purposes our rates change every week.  The rate cannot be confirmed until the week of closing.  However, we have a Principal Limit Rate Lock (on the index of the LIBOR which means we can use the rate at the time of application or closing, whichever is the most favorable to the borrower, to determine the loan amount available.)  For the process of planning how much will be available to the borrower, I initially use the rate and amount of the program chosen at the time of application.
  • Rather than using all reverse mortgage funds, more personal funds can be used for the purchase so the reverse mortgage can be set up with a Line Of Credit Option (HECM LIBOR option only)
  • Seller has to be the owner of record for 90 days prior to the date of the sales contract (based on when recorded).  (This is to protect against property flipping.)
  • Prior to completing an application HUD requires the Certification of Occupancy.
  • The Original Purchase Contract or Certified Copy of the Purchase Contract is needed for underwriting.
  • Counseling must be completed by a HUD approved HECM counseling agency that has been approved to provide reverse mortgage counseling.  Minnesota requires that the counselor be located in Minnesota.  We will provide a you a list of HUD approved counselors.
  • The property must be livable at the time of closing.  Any required repairs must be completed prior to closing by the seller – no repairs or repair set asides are allowed.
  • Funds are provided at closing, as there is no rescission period.Move closer to family using a reverse mortgage
  • The new property has to be the primary residence and occupancy must happen within 60 days of closing.
  • One’s existing home may be retained as rental property or if purchasing current home prior to the sale of existing home income verification will be required to document the ability to maintain both properties.  (This is prevent the practice of “buy and bail.”)

Using the reverse mortgage to finance the purchase of your new home may be your solution to meeting your goals without having a monthly mortgage payment.

*You may also need funds for property taxes, initial hazard insurance premium, home owner association dues, etc.

©2013 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-YY

Related articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.