New 2009 Reverse Mortgage Program For Those 62 and Over

Reverse Mortgage Purchase Product for Seniors 62 and Over

Many are familiar with a Reverse Mortgage, or the Concept. These have gained increased interest in today’s housing market. Traditional Reverse Mortgage Loans are used to access equity in the existing home, on the Primary Residence, while allowing the homeowner to retain title, equity, and possession of the home. They have received increased interest now, because of the general economy. Also, many who would like to move but have been unable to sell their home, are using them to tap equity proceeds that can be used to purchase another (2nd home), sell the primary, pay off the Reverse, receive the remaining equity, (the difference between the sales proceeds and the reverse, plus accrued interest). Then, you may decide to take out a reverse on your new primary residence, which can provide additional funds for Investment, or whatever purpose you want.

Here is an example; Lets say a Couple, aged 62, own a Home in Ohio, with a Tax Value of $200,000, a true market appraised value of $225,000. They would like to purchase a home in the Carolinas (somewhere between Wilmington and Myrtle Beach for retirement.) They have had their home listed with no offers. They become discouraged. In the meantime, the value of their Investments (401K and others have declined), further making it more difficult for them to face retirement. Here’s how a reverse Mortgage can help; This couple could take out a reverse Mortgage for 100K. They do have enough investments left to purchase a home, along with the Reverse Proceeds, to Purchase a Home for 250K, thereby enabling the move.

Once the home in Ohio Sells, say in 1 year, for 200K, they would realize a gain of 97K, which is the remaining 100K in equity, minus interest. So of the 150K they added to their purchase price, they have now recouped 97K of that. In addition, they can now take RM for approximately 125K on the home they purchased. So in this example, let’s see how they came out:

Home in Ohio RM for +100K Home in Carolina Purchased for -250 K (used the 100K RM plus 150K from 401K) Home in OH sold received Proceeds of +97 K RM on Home in Carolina for +125K

So in this example, they moved, got a new, more expensive home, and are still to the positive after the 401K withdrawal +$72,000.

Please note this is not an actual transaction, and no guarantees are implied, but this is a very typical scenario we have in today’s market.

How the Reverse Mortgage Purchase Product Works

A Reverse Mortgage Purchase product has been highly anticipated by Builders, Developers, Seniors, and real Estate agents. A Reverse Mortgage for Purchase allows those 62 and over To purchase a new principal residence using loan proceeds from the home. Here is an example: Our couple above, has already sold their home, and are ready to relocate to the Carolinas. They are typical retirees, over 62 and cash buyers. They do not want a mortgage payment. After finding their ideal location, they tell the Realtor they would like to Purchase a home, or townhome, and usually specify a price range, in this example, we will use 200K. In this scenario, using a HECM for Purchase, that home could be purchased for approximately $125K in cash, 125K in a RM. The homeowner would get the title, with no additional payments. The HECM for Purchase has no pre-payment penalty, and can be paid off at anytime. The bank never takes the home. It always belongs to the purchaser and their heirs. If the Mortgage balance somehow became greater than the Home Value, the original borrower would continue to live in the home. All Reverse Mortgage Loans are non-recourse loans, meaning that there could never be a deficiency judgement on the purchaser or the heirs. FHA at that point makes up the difference. This allows retirees to purchase more home than they thought they could afford, or use less cash for their purchase. It is a great tool for anyone considering buying a home, that is older than 62. I can see many in their late 50’s and early 60’s delaying a purchase until they can qualify. The program was passed by Congress on July 30, 2008, (H.R. 3221) and signed by President Bush. It is designed to allow Seniors to move closer to family members or downsize their homes as their needs change, in a single transaction, eliminating the need for a second closing. As with all Reverse Mortgages, Counseling is required by an approved HUD Counselor. These can generally be done either in person, or over the phone. We do not have all the final details about the program, we are still waiting on a letter from HUD that is due most any day that will tell us exactly what the parameters are. The last Mortgagee letter, issued in October, (#2008-33), outlines many of the features, and how this will be implemented. In a nutshell, HUD put as many safeguards in place as they needed to avoid fraud and abuses while allowing for as many different property types and transactions as they felt under the Guidelines. The down payment has to come from cash sources, and cannot be borrowed. This program will allow those qualified options they never had previously. Imagine being able to buy that new home without qualifying, (no income or credit score is required), never having to make another mortgage payment, and being able to hang on to a portion of the money that you thought you might have to use. Sounds like a great program for the future of housing!