Helping Clients Feel at Home with Retirement
- Apr. 24, 2018
- Britany Linton
- Home Loans
As a Loan Officer, helping clients prepare for retirement typically isn’t part of the job. However, you could indirectly make retirement more affordable for many people.
Between today and 2027, roughly 10,000 members of the Baby Boomer generation will celebrate their 62nd birthdays each day. Those who are homeowners have something else they can celebrate. At age 62, they qualify to apply for a reverse mortgage. While not as festive as a cake, reverse mortgages can make retirement more affordable.
Reverse mortgages provide homeowners with the ability to free up their home equity without having to move. Because these loans have no monthly payments, they also make living on a fixed income, or lower income, more manageable. Reverse purchase loans also create housing options that many clients may not have previously considered, including being able to buy a more expensive home.
What Is a Reverse Purchase Mortgage?
Unlike a refinance, where the loan is taken out against a home already owned by a borrower, with a reverse purchase mortgage—also known as a Home Equity Conversion Mortgage for Purchase (HECM for Purchase)—the borrower uses a reverse mortgage to buy a new home.
In a regular mortgage closing, a client signs a note with a lender for the amount above the down payment and the closing costs. With the reverse purchase, they sign and receive title of ownership and the keys. The remaining portion of the purchase is funded by the lender.
The rules regarding reverse purchase loans are fairly straightforward:
Everyone on the home’s title must be at least 62 years old before an application may be made.
The homeowner(s) are required to have a down payment of roughly 50 percent—the actual amount is determined based on age and the home’s value.
The down payment cannot be borrowed money but can consist of proceeds from the sale of another home or asset.
Homeowners must have sufficient resources to maintain the property in good order and make timely payments of property taxes, insurance premiums, and any association fees.
When the home is sold, the loan is repaid with interest from the sale proceeds, and the remaining balance is returned to the borrower(s) or the estate.
Homes acquired using a reverse purchase must be used as a primary residence after closing.
Reverse purchase mortgages can be used to buy a single-family home; a small, multifamily home; a townhouse; or an FHA-approved condo. New construction homes are eligible, provided a Certificate of Occupancy has been issued.
No seller concessions are allowed within the sales contract.
As with reverse mortgages, borrowers are required to undergo FHA-required HECM counseling, which needs to be completed before an offer is made on the property.
With this type of loan, Loan Officers are expected to examine the sales contract to ensure it meets the qualifications for a HECM for Purchase. With a signed purchase agreement, the application for the mortgage can be made and the financials submitted, though the credit analysis required is far less rigorous than on a typical loan.
An Option for Older Clients
As individuals begin winding down their high-income years, having the option of using a reverse purchase mortgage enables them they to free up more of their cash flow for expenses not related to their housing. This may include bolstering retirement savings, health care spending or simply living more comfortably off a reduced income. Reverse mortgages, in general, are finding more acceptance as financial planning tools making them products that could be attractive to many of your clients as they turn 62.