Probably one of the most important choices you can make when selecting a reverse mortgage is the lender. The decision to tap into your home’s equity is an important one, so you’ll want to carefully consider your lender’s professional expertise and commitment to helping you meet your unique needs.
A reverse mortgage professional who has been a real estate broker since 1989, Ed Dumas educates REALTORS® on “reverse for purchase,” providing the facts on how seniors can finance the purchase of a home and never have to make a mortgage payment as long as they live in the home and pay their taxes and insurance.
According to Dumas, a reverse mortgage is an important option that can help homeowners age 62 and older improve their lives, however many aren’t aware that a reverse mortgage can be used to purchase a home through the Home Equity Conversion Mortgage (HECM) for Purchase program.
Reverse mortgage was first introduced in 1988 as a refinance tool to help people stay in their homes. The purchase option was added to the program in 2008 to address the needs of seniors who still wanted to “age in place” but needed a more appropriate place to do so.
A former project manager/marketing director for builders in Cobblestones of Munster, White Oak Estates of Munster and Highland, Lakewood Estates of Schererville and the Villas and Silver Hawk of White Hawk Country Club in Crown Point, Dumas knows from firsthand experience how important reverse for purchase can be when it comes to improving the quality of life for seniors.
“HECM for purchase is a great option for older adults, because it can help them attain a house that’s right for their needs without having to go through the traditional mortgage process – their credit history and income are not a factor,” he said. “The key to getting the most out of this financial option is to get all the facts to make an informed decision. The developments where I worked were planned communities offering a variety of maintenance-free ranch-style homes. For most of the buyers this was going to be their last home, but for many them, it was not affordable. Then, I discovered how this government-backed program could help them attain their dream.”
How does reverse mortgage work?
According to Dumas, a reverse mortgage is a loan for senior homeowners that uses the home’s equity as collateral. The loan does not have to be paid off – including principal plus accrued fees and interest – until the last surviving homeowner permanently moves out of the home or passes away. At that time, the estate has approximately six months to one year to repay the balance of the reverse mortgage or sell the home to pay off the balance (any remaining equity is inherited by the estate, and the estate is not personally liable if the home sells for less than the balance of the reverse mortgage – a government guarantee ensures the borrowers and their estate will never owe more than 95 percent of the home’s appraised value.) Additionally, being a nonrecourse loan, there is never a requirement to pay off the existing mortgage balance. The heirs can simply walk away if desired.
HECM for purchase enables borrowers to buy an existing one- to four-unit home, town home or condominium. The loan proceeds are applied toward the home purchase. The buyer uses cash on hand to make a substantial down payment, usually in the range of 40 percent, which covers the property’s sale price and closing costs minus the HECM proceeds.
The borrower(s) own the home and continue to live in it for as long as they want. The homeowners must continue to pay property taxes have homeowners insurance and maintain the home.
Who is eligible for reverse mortgage?
The Federal Housing Administration (FHA) requires that all homeowners be at least 62 years of age. The amount that can be borrowed is determined by an FHA formula that considers age, the current interest rate and the appraised value of the home.
According to Dumas, there are some advantages the more senior you are.
For example, when looking at the total cash required for closing when purchasing a $200,000 home, a senior age 62 would need $86,349 compared to a senior age 73 who would need only $71,239 (actual numbers may be plus or minus $3,000-$5,000).
Who needs reverse mortgage?
“From low interest rates to lower-than-expected home equity, the recession took its toll in multiple ways,” Dumas explained. “On average, baby boomers reported that they lost an average of $117,000 in retirement savings. That’s a significant amount of money – whether you are living on a fixed income now, or you are planning to retire soon. With roughly 10,000 baby boomers turning 65 every day, more people than ever are looking for financial options when it comes to either aging in place or buying a new home that will better meet their needs moving forward. Either way, reverse mortgage can help them remain independent.”
For answers to additional questions or concerns about reverse mortgage, contact Ed Dumas at 219.712.6500.