How A Reverse Mortgage Can Help Your Senior Clients Buy A Home
Working with established clients is truly rewarding, especially those you’ve previously assisted with one or more home purchases and will retire soon. A Home Equity Conversion Mortgage (HECM) - commonly referred to as a reverse mortgage – can offer these clients financing options that will streamline their next purchase because a Reverse Loan is the next best thing to a cash offer.
The Boomer Market’s BoomingAccording to the AARP, over 10,000 Americans celebrate their 62nd birthday every day, and quite a few of them are thinking of moving. They’re tired of caring for lawns, climbing flights of stairs, dusting empty bedrooms, or all of these.
Some seniors are ready to make a favorite vacation resort their year-round home, or move closer to their children and grandchildren. Unfortunately, most seniors won’t qualify for a new mortgage so they have given up on their dreams of moving and feel stuck in their situation. Most don’t realize that a Reverse Mortgage could make those dreams a reality.
Reverse Mortgages: Much More Than Cash-OutIf you are under the impression that HECMs only offer cash-out payments to homeowners, think again. If the homeowner owns a home with a high appraisal, $500k – to $700k for example, they can use a HECM to cash out and buy an investment property or second home in the $250k to $350k range. However, the HECM really shines for seniors living in a home valued around $250,000 and they want to buy something in the $350k - $400k range. They probably can’t qualify for a forward loan, so they feel stuck in a house that just doesn’t suit their next stage of life.
These are opportunities for real estate agents to come to the rescue! Once they sell their existing home, they can use the net proceeds as the down payment for their next home while the reverse loan provides the rest of the proceeds. And, there are no mortgage payments that need to be made! So, your client gets to select a home where they live much more comfortably, and they continue to live without having any mortgage payments. They will still be required to property taxes, homeowner’s insurance, and HOA (if applicable). But they can save any money left over from the sale of their home to help with these expenses.
Eligibility Requirements For A HECM BorrowerQualifying for a HECM is straightforward and the documentation requirements are minimum; much less than a forward loan:
- Age of the youngest borrower is used for loan amount calculation
- Evidence of age and identity is required so driver’s license (or other ID) and Social Security card is needed
- Evidence of income which usually consists of just the Pension Awards letter and/or SSA Awards letter
- Rarely are tax returns needed unless the borrowers are self-employed or own other properties
- The lender will run a credit report to examine the number of late payments made in the previous 24 months, but scores do not come into play.
- Borrowers should have a history of making timely homeowner’s insurance, property tax, and HOA (if applicable) payments for 2 years. FYI: Even if there have been late payments in the past 2 years of any kind, it still may not disqualify the borrower, but it can reduce the loan amount.
More Reasons To Recommend A Reverse Mortgage (HECM):
- You won’t be wasting time showing homes to clients that aren’t qualified because the homeowners will be pre-approved for the purchase before beginning their home search.
- Builders and renovation contractors can suggest to their senior clients that HECM funds can be used to renovate their home, including safety measures for “aging in place” more comfortably, to avoid having to sell and move
- Clients have the option of retaining their retirement funds for other future needs, such as medical or long-term care
- Some may qualify for a tax-free, growing line of credit to be used for living expenses
HECM BasicsWhen you first suggest a reverse mortgage to clients, they’ll probably have questions for you. Here are the responses to the most frequently asked questions:
- A reverse mortgage does not require a client to give up ownership of their home. Their name will still be on the title, and they’ll be responsible for the property’s taxes, homeowner’s insurance, and similar costs.
- HECMs are regulated by the U.S. Department of Housing and Urban Development (HUD) and insured by the FHA.
- All clients will receive counseling from a HUD-approved third-party counselor before applying for a HECM and have the opportunity to have their questions answered by an independent unbiased advisor.
- Reverse mortgages are NON-Recourse loans meaning that if the loan balance ever exceeds the value of the home, neither the homeowner nor their heirs would ever be responsible for paying the difference. No debt will be left to your heirs.