HECM
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.
Power of Attorney for Reverse Loans
There are some occasions when it is necessary for a POA or Power of Attorney to be used when the borrower for the reverse mortgage is no longer physically or mentally competent and unable to manage their personal affairs and they need someone else who can legally represent them when it’s needed.
Generally speaking, if the borrower has a Trust in place, a Durable Power of Attorney is included in the Trust documents for each Trustee and can be used to manage the financial affairs of the named individual on the document.
For the sake of simplicity, I will not discuss all of the details in regards to Underwriting a reverse loan when a POA is being used for the loan application. But I am going to quote directly from a Reverse Loan lender guidelines about what a family needs to know if they intend to use one for their family member if they are unable to represent themselves in the loan process.
- If the borrower is mentally incompetent with a condition such as dementia or Alzheimer’s, he or she must meet the HUD face-to-face requirement at application, the HUD counseling or at the signing of the loan documents.
- A doctor’s letter certifying that the borrower is no longer capable of handling his or her own financial affairs and it must include the date the borrower became incapable of handling financial affairs.
- The date on the doctor’s letter must be AFTER the date the borrower originally signed a Notarized POA.
The above would also apply in those situations where the borrower(s) is competent but physically incapable of signing documents and representing themselves. This could be due to extreme arthritis, blindness or other disabling physical conditions.
I hope that this information makes it a bit easier to understand what the HUD guidelines are to use a POA and also to reassure families that it does not affect their opportunity to be approved for a reverse mortgage. It’s important to know what are the steps that need to be satisfied to be and quickly complete the loan process.
There Are a lot of Boomers
10,000 Americans each day are turning 62 and few of them have any funds saved for retirement and those that do, are underfunded in their retirement portfolios and they may not have enough funds to protect them as they grow older and face medical expenses due to aging and other unplanned life events.
I feel that the FHA and proprietary reverse loans will become part of everyone’s retirement plan, because a home is a senior’s greatest assist and why not use the equity in it to pay for unplanned expenses and still be able to remain in their home?
Seniors will start to see that by using a reverse loan to assist in funding their retirement as a viable option to protect them from drawing down on their retirement funds too often and also potentially avoid tax consequences such as paying Capital Gains on any withdrawals.
It’s an obvious and safe solution and should not be overlooked by any senior homeowner and they owe it to themselves to consider the loan as a possible solution allowing them to eliminate their concerns, age in place and not be afraid to consider its use as a possible solution to remaining financially secure.
Retiring With More Money
As the need for utilizing one’s equity to leverage a retirement fund increases, more seniors will consider using a reverse loan to protect themselves from outliving their savings and running out of money.
Boomers are living longer than previous generations and the number 1 fear for any senior, is that they will not have enough funds saved for the remainder of their lives and what will happen to them if they use up all of their retirement funds and investments?
But the use of a reverse loan can possibly remove that fear and the negative image and myths that have plagued the FHA HECM for many years, are finally changing and are now seen in a positive light.
More Financial Advisors and CPA’s are recommending to their senior clients that they consider using it to protect their retirement funds from unnecessary draw-downs, taxable consequences and preserve their portfolio.
And now the mortgage is being seen as a creative and beneficial option to allow seniors to continue to live independently in their homes and be free of the stress and worry of running out of money in the future.
With the current concerns about Medicare and Social Security becoming insolvent in the near future and that Medicaid/MediCal will not be able to meet the needs of an aging population, is very scary and depressing and how will seniors be able to live comfortably and have enough money to maintain their lives?
A Second Act
Through our youth, most of us were busy either attending college, working or doing both at the same time and thinking about how we wanted a fulfilling life and make piles of money in the process.
Or “not”, maybe you “partied” your way through this period of time.
Then you married, had a family, a mortgage and all the obligations that came with those choices. Regrets? Maybe, maybe not.
Once in a while you managed to afford a vacation but the dreams that you may have had when you were young, probably fell away and now are seen as unattainable. Buried under the responsibilities of marriage, parenthood and the plethora that comes with it, you gave up on the interests you may have been passionate about.
But sometimes in those quiet vulnerable moments, they return.
Years pass quickly and you have no sooner begun your career and profession, when you find yourself on the verge of retirement and without the career you had for years that was your guiding purpose, you find yourself adrift.
Your identity you cultivated over the years, vanished and now you are unsure what the last part of life will be like because it feels empty; there is no purpose…..
And there is the distinct possibility that you won’t have enough funds to retire and will be forced to continue to work well past your retirement years, because you are burdened with a mortgage.
However, you could use the funds from a reverse loan to get out from underneath it and possibly have additional funds in a Line-of-credit and not have any mortgage payments ever, again.
And having this money available to use for any purpose, could open up possibilities to move yourself forward, towards whatever it is you are passionate about and reignite those dreams from long ago. And begin a very rewarding and satisfying second chapter in your life as a retiree.
And possibly fulfill that dream that you had so many years ago?
Why not?