Purchase Reverse Mortgage or Post Sale Reverse Mortgage?

Seniors sold sign

I often see clients considering downsizing and selling their existing home to purchase a more modest home.

The decision: “Do I sell my existing home and pay all cash for the replacement home and THEN get a reverse mortgage line of credit or, do a reverse mortgage for purchase on the replacement home?

As well as being a licensed loan officer I am a real estate broker and have known in theory that it is risky to pay all cash on the new home and close escrow ASSUMING the replacement home will qualify for a reverse mortgage post sale, but have not had actual examples until, unfortunately, this year where I had several examples.

I did not meet with the individuals in these examples prior to the purchase of their replacement home; they came in post close of escrow to inquire about taking out a RM credit line. The sale of their prior home did not cover the price of the replacement home, causing them to dip heavily into savings accounts to pay all cash. In doing preliminary research on their properties I had to deliver the bad news: their replacement properties would not qualify for a reverse mortgage and they were shocked.

How could a reverse mortgage for purchase process, rather than paying all cash, have protected these folks? The RM for purchase process protects an individual via the real estate purchase contract contingency clause, giving them several weeks or more to go through the loan qualifying process with a loan officer, appraiser and underwriter working on their behalf to determine if the property and they will qualify for a RM. If the property and they receive loan approval they can confidently close escrow knowing their financing will be in place. However, if going through the process it is determined the subject property or they will NOT qualify for a reverse mortgage, the individual can walk away during the contingency period and not lose their earnest money deposit.

It’s wise to see a loan professional well in advance of selling an existing home and looking for a replacement as there are numerous RM pre-approval steps required.

 

Shawna McDonald, License Loan Officer, has completed hundreds of reverse mortgage loans and is approved with 10 reverse mortgage lenders. She is available by appointment. Sierra Foothills Reverse Mortgage 412 E. Main Street Suite N, Grass Valley, (530) 497-3010. Her website is www.SierraFoothillsReverse.com. NMLS #271335 | CalBRE #00585530 Borba Investments Inc. Company NMLS #76801 |Company BRE # 01446165 These materials are not from, and were not approved by HUD or FHA

 

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2017 Reverse Mortgage News and Trends

seniors-holiday-new-year

Happy Holidays and the new year of 2017 is right around the corner.  Here are a few things to summarize about 2016 and look forward to in 2017 within the reverse mortgage world:

 
It’s been an active year for revere mortgages, in addition the government insured RM program reached a milestone: In 2016 1 million reverse mortgage loans completed since the program’s inception in the late 1980’s.

 
Changes and trends for 2017:  Financial planners in greater numbers are looking with favor upon the RM for clients to set up a credit line safety net rather than dip into investments for extra living expenses or they are recommending clients utilize the RM to pay off an existing mortgage. In paying off an existing mortgage the client becomes monthly mortgage payment free increasing monthly household liquidity, thus advances from investments to sustain living expenses may be either reduced or halted altogether. (Borrowers must continue to pay and keep current property taxes and homeowners insurance, as well as HOA dues if applicable.) No changes are anticipated in this fundamental tenant of the program: the borrower(s) remain on title as the owner(s) of the property when they do a RM loan.

 

The home price maximum recognized has been increased for 2017 from the current $625,500 to $636,100:  This does not mean that homeowners with homes valued above this amount cannot utilize the program; for example: a home valued at a million dollars would be limited to borrowing only as much as the $636,100 limit allows.
A new Harvard University report entitled “Projections & Implications for Housing a Growing Population, Older Households 2015-2035” issued putting forth that a RM can be a financially realistic option to help older homeowners alleviate cost burdens and comfortably age in place.**

The Financial Assessment process of a RM application became more streamlined this year: standardization of proof of income to demonstrate continued ability to pay ability ongoing mandatory obligations such as a car payment property taxes, and homeowners insurance, and HOA dues if applicable has made the process uniform. The good news: the income requirements are NOT as stringent as with a conventional loan.
Long term care insurance: Seniors without long term care insurance are looking towards the RM credit line as a source of funds for future in-home care or home modifications for aging in place: ramps, handrails, or step in showers are a few examples.

Long term care insurance:  Seniors without long term care insurance are looking towards the RM credit line more commonly as a source of funds for future in-home care or home modifications for aging in place: ramps, handrails, or step in showers are a few examples.
**http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/harvard_jchs_housing_growing_population_2016.pdf

Purchase Reverse Mortgages Grow in Popularity

Senior in a new home

BUYING A HOME IN RETIREMENT ~ But I Thought I’d Have to Pay all Cash !

 

This real estate season of 2016 I am seeing home buyers 62 years of age and older utilizing in greater numbers the Reverse Mortgage Purchase Loan; a loan that expands home buying power and conserves a nest egg from the sale of an existing home. Here’s an example:

Wanting to downsize, Karen and Jim are retired 76 year olds whose home sold for $550,000.Their replacement home costs $400,000, however their retirement income does not qualify for a conventional loan, they thought their only option was to pay cash, doing so leaves them $150,000 from their home sale, not as large a nest egg as hoped for.

Enter the RM Purchase Loan:  income qualifying is to prove ability to meet on-going property taxes, home insurance, (and HOA) obligations; thus qualifying for a RM Purchase Loan is less stringent than for a conventional loan. On a home valued at $400,000, Karen and Jim’s down payment is $171,000 (43% of the purchase price), a far cry from paying all cash of $400,000. The balance of the purchase price plus fees is their RM mortgage. Just as with all reverse mortgages, they will be monthly mortgage payment free.

 THE BIG NEWS: instead of having a nest egg of $150,000 from the sale of their original home had they paid all cash for the replacement home, the RM Purchase Loan allowed them a residual nest egg of $379,000. Could a RM Purchase Loan have been used to buy a higher priced home than their original home of $550,000? Generally speaking yes; folks I have worked with have obtained their dream home with a RM Purchase Loan.

A RM Purchase Loan is titled with Karen and Jim as owners of the home, (they do NOT give up ownership of the home, a common RM misconception). The home can be sold by them or heirs, the reverse mortgage paid off, and they or heirs keep the remaining equity. As with any home loan, it is required that property tax, maintenance, and home insurance obligations be kept current.

This is an exciting program opening up more possibilities for seniors, give me a call if you would like to see your personalized loan scenario and obtain program details.

Shawna McDonald, Loan Officer has successfully completed hundreds of reverse mortgages. Approved with 8 of the largest reverse mortgage lenders in the nation, she is available by appointment; her local office, Sierra Foothills Reverse Mortgage, is located at 412 E. Main St. Suite N, Grass Valley, (530) 497-3010. The website is www.SierraFoothillsReverse.com.

INMLS #271335 BRE 00585530 Borba Investments, Auburn, CA Company NMLS #76801 Company BRE #01456165