Home Equity Conversion Mortgage
Clients who need a comprehensive retirement plan can unlock their home equity and use it with a reverse mortgage. By doing this, they open a greater range of possibilities to strategically manage and enhance their wealth.
Reverse Mortgage’s Role in Financial and Estate Planning
Conventional wisdom has been changing even though the challenge remains the same: How to Make a Client’s Money Last! A reverse mortgage can increase portfolio longevity including Asset Preservation, Cash Flow Management, Stand by Line of Credit, Security and Quality of Life.
Did you know that a borrower can purchase a home with a Reverse Mortgage Purchase Loan?
Retirement Planning Using
Many Ways a Reverse Mortgage Can Be Used to Enhance Financial Security in Retirement
- Protect portfolio performance in a down market.
- Delay Social Security and pension payouts.
- Draw on tax-free funds to reduce tax liability. *
- Postpone drawing down retirement assets, giving assets more time to grow.
- Cover large unexpected expenses such as medical bills or home modifications.
- Finance a new residence through the HECM for Purchase product.
- Replace cash reserves.
- Loan proceeds are TAX-FREE, and the interest, when paid, may be tax deductible. *
- Establish a GROWING line of credit for future needs and opportunities
“Reverse mortgages do have a place in mainstream retirement distribution planning, and have a significant impact on the probability that some clients will be able to meet their predetermined retirement goals.” *
--The Journal of Financial Planning, “Standby Reverse Mortgages: A Risk Management Tool for Retirement Distributions” by John Salter, Ph.D., CFP, AIFA; Shaun Pfeiffer; and Harold Evensky, CFP, AIF
*Consult your financial advisor or tax planner
Home Equity Conversion Mortgage for Purchase (H4P)
The Home Equity Conversion Mortgage (HECM) for Purchase (H4P) home financing program can help you sell more homes, by making it easier for people age 62 and older to buy the home they desire.
What is H4P?
Home Equity Conversion Mortgage for Home Purchase (H4P)
Did you know senior borrowers age 62 and older can use a Home Equity Conversion Mortgage (HECM) to purchase a home? Many senior borrowers have heard about the benefits of paying off an existing mortgage utilizing a reverse mortgage.
However, many are still unaware that they can also purchase a new home by combining a reverse mortgage with a down payment. This enables senior borrowers to purchase a new home without having to worry about making monthly mortgage payments (borrowers must remain current on property taxes, homeowner’s insurance and HOA dues). The HECM for home purchase also has limited income and credit requirements, many consumer safeguards, is FHA-Insured and HUD regulated!
- Homeowner must remain current on property taxes, homeowner’s insurance, HOA dues and routine home maintenance
- Must be 62 years of age or older
- Home being purchased must be the primary residence
- No Builder or Seller concessions allowed
- Competitive fixed rate and adjustable rate mortgage available
- The amount of money qualified for depends on age, home value and interest rate at the time of the loan
- Limited income and credit requirements
- Borrowers will go through a Financial Assessment to ensure the reverse mortgage will be feasible for them and that they will be able to meet the mandatory requirement to keep their property taxes, homeowner’s insurance and HOA dues current
- The Federal Housing Administration allows mortgagees to take applications for Home Equity Conversion Mortgage for Purchase loans from potential borrowers without a certificate of occupancy and before the completion of reverse mortgage counseling
- Non-Recourse Loan: Borrower will never be personally liable for more than the home’s value at the time of sale and cannot leave themselves or their families in debt
The HECM for Purchase Marketplace
According to recent research from the U.S. Census Bureau, 69% of 55+ households do not live in a community designed around their needs. Many homeowners are considering, or would consider, a move to help meet important desires for their living space.
Closer to family
Whether moving closer to children and grandchildren or maintaining relationships with siblings or other relatives, many retirees are searching for the perfect location.
Quality may mean a better floor plan, such as a single-story residence that eliminates stairs, or simply enjoying the benefits of a more high-end, energy-efficient home.
Many older homeowners are ready to give up the hassle of yard work, exterior home repairs and other necessary maintenance in favor of a community that provides these services.
MORE PURCHASE POWER!
By utilizing the HECM for home purchase, senior home buyers have found that they can buy more home with less cash out of pocket!
The Home Equity Conversion Mortgage (HECM) for Home Purchase has opened new opportunities not only for Senior Home Owners, but also for Financial Professionals. Financial Professionals now have a reason to market to the fastest and largest growing demographic in the country. It is estimated that over 10,000 people a day in America are turning 62 years of age. The first wave of the Baby Boomer Generation is now receiving Social Security Income.
Many of today’s seniors are living in homes that no longer fit their life style. Many of the homes are multi-level, with the bedrooms upstairs, the kitchen on the main level and the laundry facilities down in the basement. In some cases, the yard is too big in the summer to take care of, the drive way is too big in the winter to shovel. Many seniors today are living in homes that are too far from family & friends.
What they want is a new home, but what they don’t need is a new monthly mortgage payment in this latter stage of their life.
Why Should You Offer HECM for Purchase?
- Eligible clients can purchase a new home using less money upfront
- Additional funds can be used for upgrades or more square footage
- Clients retain retirement funds for other more important needs and lifestyle
- Some may have a tax-free growing line of credit left to be used for other needs such as paying increasing taxes and insurance, or for property maintenance and other emergencies.
Some use a reverse mortgage on their existing primary residence to pay cash for a second home or investment property without making payments again on either, other than taxes and insurance.
The HECM purchase program can be used for existing one-to-four unit properties where construction is completed and a certificate of occupancy is issued. Homes must meet FHA guidelines determined at the time of appraisal.
How Does This Help You?
Understanding and offering a HECM for Purchase program is a great way to increase home sales and provide tremendous value-add to your customers. This includes a powerful financing alternative that literally changes lives for those looking to prolong retirement resources. Offering your customers, the right financing alternatives allows you to focus on what you do best—building and selling new homes.
What Are Its Special Features?
- It is a Federal Housing Administration (FHA) insured, non-recourse loan
- Requires no monthly mortgage payments (borrowers must live in the home as their primary residence, remain current on the property taxes, homeowner’s insurance and HOA dues and maintain the home according to FHA requirements)
- For homebuyers age 62+ years
- For primary home purchases
The Advantages of a HECM for Purchase for Seniors
- Purchasing Power
- Relocate to a home more suitable for retirement and get a nicer home for the money.
- Senior homeowners can live in their home without making a monthly mortgage payment. With most seniors on fixed incomes, not having to make a monthly mortgage payment can improve cash flow and relax a monthly budget tremendously. Borrowers are required to maintain the home and remain current on their property taxes, homeowner’s insurance and HOA dues.
- The HECM borrower (or his/her estate) will never owe more than the loan balance or value of the property, whichever is less; and no assets other than the home must be used to repay the debt. These are FHA insured, non-recourse loans.
- Property and title remain in the borrower’s name, and they retain full ownership.
- It may be easier to qualify because no monthly mortgage payments are required. Borrowers must maintain the home, and remain current on property taxes, homeowner’s insurance and HOA dues.
- A HECM reverse mortgage cannot go into foreclosure as long as the borrowers adhere to the HUD loan guidelines and fulfill the requirements of the loan. If the borrowers want to pay off the HECM reverse mortgage, there are no pre-payment penalties.
WHY 1st Reverse Mortgage USA?
A reverse mortgage is a powerful option for anyone age 62 and over, yet few understand it and too many miss out on its advantages. You want to trust your partner source for HECM financing. We are one of the only mortgage bankers that focuses exclusively on reverse mortgage strategies with a focus on education and new home purchase strategy. We offer:
- Free on-site or online education for your sales team whenever you need it.
- Monthly e-mail updates on current trends
- Free customer referrals when we meet people who may be building in your area
- Free professional printed materials to offer customers at all your showroom sites
How it’s Different
A traditional mortgage limits the amount of funds shoppers have to invest upfront, restricting their purchasing power. This puts limitations on the kind of house or upgrades a shopper may decide to purchase now—and could cause financial issues for them in the future.
H4P does not require monthly mortgage payments (borrowers must live in the home as their primary residence, remain current on the property taxes, homeowner’s insurance and HOA dues and maintain the home according to FHA requirements) throughout the life of the loan. Interest and fees are simply added to the loan balance so that it increases over time, rather than decreasing. The buyer builds less equity—but unlike a traditional mortgage, they are never at risk of owing more than the home is worth at the time of repayment.
The FHA requires that all HECM applicants complete a session with an independent, third-party counselor in person or by phone. This is for the buyer’s protection, to make sure that they fully understand the program and the terms of the loan.
How Can Your Clients Use a HECM for Purchase?
With $140,543 Investment, they can buy
Home in Cash
With HECM for Purchase Loan1
1This example is based on the youngest borrower, who is 71 years old, a variable rate HECM for Purchase loan with an initial interest rate of 2.406% (which consists of a Libor index rate of 0.156% and a margin of 2.250%). It is based on a purchase price of $300,000, origination charges of $5,000, a mortgage insurance premium of $7,500, other settlement costs of $2,943; amortized over 168 months, with total finance charges of $129,951.87 and an annual percentage rate of 4.30%. Interest rates may vary and the stated rate may change or not be available at the time of loan commitment or lock-in. The borrower will be responsible for paying property charges including homeowner’s insurance, taxes, and maintenance of home for the term of the loan. Interest will accrue on loan balance.
HECM FOR PURCHASE (H4P) SCENARIO:
Don who is 71 years old, wants to move closer to family. The value of his current home is $300,000. The purchase price of his next home is also $300,000.
However, he wants to eliminate his monthly mortgage payments.
Don may use the proceeds from a HECM for Purchase Loan of $174,900 and a cash investment of $140,543 to purchase his next home. Eliminating monthly mortgage payments1 and moving closer to family.
Since the initial disbursement at closing is greater than 60% of the principal limit the mortgage insurance premium is based on a rate of 2.50%, which is a percentage of the lesser of the appraisal value, the purchase price or the maximum lending limit.