buying a home
HECM 4 Purchase
Okay, what does “HECM” 4 Purchase mean? Is is some sort of mysterious formula for investing or making money? The general public is unfamiliar with this term as are most Realtors.
So what does it mean and why is it something that could be very useful and advantageous for a senior to know about? Its a type of mortgage that they can use to purchase a home or even a second home such as a vacation property.
And how would they do this?
Buy using funds from a reverse loan. As long as the borrowers are aged 62 or older and they have funds that could be used for a down payment on an a new property, they could possibly relocate to an area they have always wanted to live in or buy their dream home.
If you want to know more about this special loan program, please contact me for details and or I can provide you with information that is designed especially for you and your dream.
See what my clients are saying!
Within the last year newer and more affordable reverse loans have been created that allow the borrower more access to the equity in their home if it’s value exceeds 1MM. And these loans are without origination fees or the FHA MIP insurance, plus the homeowner can borrow up to 4 MM.
Realtors Increase Their Sales
Well, actually they “could be increasing their sales” if they understood how a senior client could use funds from a reverse loan to purchase a home.
Although the HECM for Purchase has been available for several years, it seems that most Realtors are unaware of it and or they don’t understand reverse mortgages and how they can benefit their senior clients and their own business.
Apparently, some who do know about it, are apprehensive about this mortgage financing option and because of that, they are not considering it’s use for their older clients. And that is because they are unfamiliar with the loan, the benefits and in general how it functions.
They are doing a disservice to their senior clients and themselves because they could receive two commissions. One for the Listing their client’s home and one for selling them their new property.
Generally, the client will sell their current residence and purchase another home using the funds from the sale of their home for the new purchase, typically about 50% for a down payment.
And if they are buying new construction they can apply for their reverse loan prior to the authorities issuing a Certificate of Occupancy, that can speed up the loan process rather than waiting for the Certificate to be issued and then applying for their loan.
It’s an ideal option for seniors to buy as they don’t have to qualify on Debt to Income rations or FICO scores, have no mortgage payments and own the property as the Title will record in their name or Trust.
And overall, it’s a much less stressful experience compared to applying for traditional mortgage financing and can be accomplished quicker as well, taking away much of the anxiety associated with purchasing a home.
And when they pass away, the property will go to their estate and designated heirs, not the Lender.
In conclusion, more Realtors should learn about how to increase their own sales and help their senior clients into properties that better suit their needs as they age.
Reverse Loans and Second Homes
A reverse loan has more than just one use for a homeowner other than refinancing their residence and it’s beneficial to know that funds from the loan can be used to purchase a property.
Most senior homeowners and Realtors are unaware of this option and could be using it to “downsize” into a smaller property or to purchase the “dream” home a senior may wish to buy in a 55+ community or move to an area of the country that they have always wanted to live in.
Another terrific option is to purchase a Vacation home.
Everyone often dreams about having a cabin, a beach house, a home on a lake or some other wonderful property that allows them to enjoy themselves and have fun and quite often, make it a family destination for vacations and family reunions.
If qualifying for mortgage payments using income and credit isn’t realistic on a second property isn’t possible, why not use the equity in one’s residence to complete the purchase and possibly pay “all in cash” for the dream home and not have payments on it, and no payments on the reverse loan because they are not required.
How perfect is that? Two homes without mortgage payments.
How is this possible you are thinking? Contact me to find out and possibly acquire that vacation home you have always wanted.
Senior Dilemma
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.
Reverse Loans and Call Centers
This next section of my article cautions the prospective borrower on how to locate information about Reverse loans and what to avoid.
Part V
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.