Home Equity Conversion Mortgage (HECM) an FHA Loan Product for Seniors over 62 to access their home equity 2 types- refinancing a current mortgage, or for purchasing a new home
- Qualifying is primarily based upon the borrowers age and equity in the property or proposed purchase price.
- Borrowers have to show sufficient income to pay property taxes and home insurance.
- Borrowers must complete a HUD approved counseling session.
- Available for single family homes, 2-4 units, and HUD approved townhouses and condos
Do you have clients who are downsizing from a larger to a smaller home, rolling over their equity and paying cash?
- Do you think your clients would be interested to know how NOT to tie up all their equity in their new home, and instead keep a large sum of money available for cash reserves?
- Imagine the look on their faces and how much they will LOVE you for putting hundreds of thousands of dollars in their pockets, instead of buried in their property.
- How is this done? Simple–
Here’s an actual example of a real client:
- Mr. R, 78 years old, is selling his home in Glendale, Ca. for $1,000,000 and will net $500,000 available for purchase after commissions, payoffs and expenses.
- He is downsizing, plans to move to Palm Springs & find a home in the $500,000 range. Had planned to pay all cash, then learned from me that he qualifies for a $350,000 Purchase Reverse Mortgage, based on his age.
- Instead of putting all $500,000 down, he will get a Reverse Loan for $350,000 and put a down payment of only $150,000, thereby keeping $350,000 readily available to him as cash reserves. This makes him feel very secure as he continues to age, which makes him very HAPPY. BOOM! I just put $350,000 in his pocket!
Reverse Mortgage Myths
- The Lender Owns, or will own the home. NO, the owner retains title ownership during the life of the borrowers. Borrowers must keep property taxes and home insurance current. Upon the demise of the borrowers, the property goes to the designated heirs, who must pay off the Reverse Mortgage by refinancing into a new loan or selling the property.
- The home must be free and clear of any existing mortgages. NOT TRUE, many borrowers use a reverse to pay off existing loan balances and eliminate their monthly payments.
- You pay income taxes on loan proceeds. NO, proceeds are tax free.
- Only low income, desperate seniors use Reverses- NO, they are increasingly used by affluent, sophisticated seniors as a retirement cash flow & estate planning management tool; frequently used to delay taking social security proceeds until 70 to maximize the amount they get.
HECMs have built in Safeguards
- HECM (Reverse) are HUD/FHA loans, protecting borrowers from lender insolvency.
- HUD approved loan counseling is mandatory, with minimal borrowers qualifying to ensure they can pay the property taxes and home insurance.
- Surviving spouse will never be made to vacate or sell the home, even if under 62 years old. New April 2015
- HECMs are “non-recourse” loans; this means that when the home is sold upon the demise of the borrowers, the heirs will never owe more than the loan balance , or value of the property, whichever is less, and no assets other than the home may be used to pay the debt.
Resources and How do I find out how much a client may qualify for?
- There are plenty of good informational resources- AARP & HUD are particularly good. Just Google “Reverse Mortgages”.
- The lenders I work with have a software program that calculates the qualifying. I need the borrowers full name, address, date of birth and social security number. Remember, you still have to qualify your client for the right price range!