buying a home
American seniors retain over 6 trillion dollars in their homes and more of them are beginning to use their equity to extend their retirement funds (Everyone is worried about out-living their savings) by using a reverse loan to leverage their portfolio’s longevity.
Another reason, might be to eliminate an existing mortgage payment and thus free up some extra money each month to be used for other expenses.
But maybe they decide to sell their home instead and take the remaining equity after Broker fees and expenses related to selling it and possibly rent instead of “own”.
What are the costs to the seller if they opt this route? I’m going to give a very simple example in this post, but obviously it would depend on the sales price, if they are paying off a mortgage and the Broker fee and other miscellaneous expenses related to the transaction.
- Sales Price: $450,000 @ 6% Broker Fees ( Might be less) = $27,000; Paying off existing loan $150,000 = $273,000 remaining equity.
- Now there are the “other” costs associated with the sale of a home.
- Escrow Fees and Title Insurance Policies Approx: $1800
- Repair and any “staging” fees; approx: $2,000 assuming any repairs are minor, etc.
- Moving expenses. Local rates can be $25.00 per “mover” and the average cost is $1000 to $2000. If the move is out of the state then it’s obviously more expensive and can be between $4000 to $8000. But again, it depends on the amount of items being packed and moved and the size of the home.
- Surprise expenses: There is no way of knowing what could happen in the process of selling one’s home. But it could be more money out of your pocket. Such as a Buyer wanting you to pay for some of their loan’s Closing Costs.
- Hassle and stress factor? It’s impossible to determine the “costs” of the amount of stress just trying to organize, pack, toss and find a new home to live in.
- And where? Going to rent or buy?
So if we deduct the estimated costs associated with our fictitious Seller and deduct it from the equity they have leftover after paying the Broker to List and sell their home, they would have somewhere in the “middle” of $260,000 and $245,000 left over after the entire, frustrating experience ends.
Now what? Rent until the money runs out or possibly consider buying another home, but this time use a Reverse mortgage to purchase it.
In the next post, let’s discuss why using a Reverse loan to purchase a property can be very beneficial method to qualify for a mortgage on a new residence.
This next section of my article cautions the prospective borrower on how to locate information about Reverse loans and what to avoid.
The best option is to not “shop” around on the Internet or call any of those “800” phone numbers, but to meet in person an experienced and qualified Reverse Loan Consultant who will prepare a personalized proposal and assist you by providing various options to achieve a satisfactory solution for you.
If they are unwilling to meet with you personally, avoid them and do not provide any personal information, setting yourself up for relentless, endless and annoying sales calls.
It is very typical for companies to employ sales people who are not licensed or experienced in the mortgage industry to answer incoming calls from ads in a Call Center.
They will never personally meet with the potential borrower and will mail a loan application package to them without previously providing a proposal or explaining how the loan works and expect them to sign it correctly and return all the necessary documentation that is needed to process the loan.
This is unprofessional and lazy.
And HUD and FHA require a potential borrower to complete telephone counseling with a HUD certified counseling agency before they can apply for the mortgage.
And it is very, very confusing and overwhelming for the individual that was only seeking information about Reverse loans and is now bombarded with phone calls from sales people.
Be smart and ask your Bank, CPA, Realtor or Estate Planning attorney if they can refer you to a licensed and professional loan consultant.
And consider taking advantage of telephone counseling with a HUD approved agency who will help you to understand the loan without and potential for personal gain or commitment to apply for it.
For the longest time, there was only one choice for a Reverse loan when I became involved in the industry 12 years ago. Since then, there have been numerous new programs with various options in regards to interest rates and fees and recently there have been some new regulations to further protect the borrower or a younger spouse who does not meet the minimum age of 62 to qualify for the FHA loan program.
I am going to share a summary of an article that was published by Bankrate about the new rules and why Reverse loans can safely be considered an option for retirement planning.
Bankrate: New Rules Make Reverse Mortgage Viable
October 23rd, 2014 | by Cassandra Dowell Published in News, Reverse Mortgage
“Recent regulation changes to federal reverse mortgages have transformed the product from a “loan of last resort” to a viable financial planning tool, says Bankrate in a recent article.
Bankrate notes some of the key changes that paved the way for the expanded use of reverse mortgages: allowing non-borrowing spouses of reverse mortgage borrowers who pass away or enter assisted living to remain in their home, and allowing qualified borrowers to obtain an HECM even if their non-borrowing spouse is younger than age 62, with the caveat that the loan’s principal amount will be actuarially based on the age of the younger spouse.
Another major change noted is when the Federal Housing Administration, or FHA, announced its HECM for Purchase Program, which enabled qualified seniors to downsize or relocate by using a reverse mortgage to purchase their new home, thereby saving on closing costs.”
The remainder of the article will be in my next post, plus a link to the entire article.
It seems that Boston College has created an ebook that discusses in a positive manner, the reasons why a reverse mortgage can provide options for seniors who either want to remain in their home or possibly relocate into something smaller or to be closer to their adult children.
I am going to share a summary of an article that discusses the ebook and what kind of information and examples that it provides to anyone who is looking for additional information about how to use the FHA reverse loan program.
It’s good information.
Boston College eBook Touts Retirement Benefits of Getting a Reverse Mortgage
Posted By Jason Oliva On September 16, 2014 @ 6:02 pm In HECM,News,Retirement,Reverse Mortgage
“For retirees looking to use their homes as income during retirement, they have one or two choices: either downsize or get a reverse mortgage, according to a new ebook  from the Center for Retirement Research at Boston College.
The booklet, Using Your House for Income in Retirement, is filled with infographics, definitions, examples and other useful tips for retirees who may be looking to shore up their savings by drawing on home equity as an additional source of funds during retirement.
WIth housing being one of the biggest single expenses for homeowners age 65 and older—consuming at least 30% of incomes for retired households—the ebook suggests that downsizing or getting a reverse mortgage can help add to an individual’s savings, cut expenses and free up income.”
The summary is a bit long, so I will share the remainder of it in two additional posts.
Not too many people are aware of the fact, that a Reverse loan can be used to purchase a home. I have shared this information with many Realtors and yet they continue to not see what a great business opportunity this could be for them, particularly if they have a large client base they have established over many years.
The advantage of using a Reverse loan over a traditional one, makes it much easier to qualify for financing. With a Reverse loan, income is not documented and FICO scores are not considered and they are not obligated to make mortgage payments.
As long as the applicant is at least age 62, will occupy the property and the funds for the down payment on the new property can be documented, they are as good as “approved”.
I am going to share an article over several consecutive posts about how one couple purchase a “second” home by using the funds from a Reverse loan that they acquired on their primary residence. A clever way to buy that “vacation” property.
10/30/13 Reverse mortgage strategy can open door to second home – Spokesman.com – Oct. 20, 2013
Reverse mortgage strategy can open door to second home
“A reverse mortgage must be made against a primary residence, but the loan can absolutely be used to help purchase a second home.
While the proceeds of a reverse mortgage typically help seniors to “age in place” by making their home more comfortable for their retirement years, there are no limitations on how reverse funds can be used.
For example, the Caseys were seeking to lower their monthly mortgage payment on their primary home so that they could afford the monthly payments on a recreational cabin.
Instead of cashing other assets, paying the capital gain tax and plunking down the net amount as the cabin’s down payment, the couple took out a reverse mortgage, which accomplished the same goal.”
To Be Continued.