Tuesday Jul 21 2009
Reverse mortgages could boost home ownership
By: Miki Garcia
For those who don’t know (moi included), the U.S. Department of Housing and Urban Development finally puckered up and put a kiss on last year’s Housing and Economic Recovery Act of Home Equity Conversion Mortgage (HECM or “Heck-um”). Effective January 2009, seniors are provided the opportunity to purchase a new principal residence with HECM loan proceeds. The following letter helps explain the process. ~ Miki Dear Miki: I met with you and another gentleman at Prudential California Realty in Folsom several years ago. I figure it’s been a good six years since that meeting. Out of curiosity, have you done a column on reverse mortgages for purchase? We just recently had a family here locally call us not knowing what to do. Their grandmother lived in Anderson, which is a good four hours away. Grandma is 82 years old and needing more and more assistance. The family was spread thin having to drive all the way to Anderson every weekend to make sure Grandma’s day-to-day needs were met for the week. Due to the real estate market and depreciated value of Grandma’s home in Anderson, selling was not an option. Grandma’s grandson is a local real estate agent in this area. He called to let us know his grandmother had $110,000 in savings, and they didn’t want to sell the home in Anderson but didn’t know how to get her a place here locally. Running the numbers, we determined that she could afford a $250,000 purchase. That weekend they found the home perfect for Grandma’s needs (low upkeep and in our price point sweet spot). Grandma was able to purchase her new home close to the family for $250,000, which only required her to put $79,000 as down payment and the reverse mortgage paid the balance. She now lives close to the family, has no mortgage payment, gets $1,000 per month rent for the home in Anderson, and has an emergency fund of $31,000 in savings. Once the market turns around, she plans to sell the home in Anderson. Best part of all is that the family only has to commute two miles to Grandma’s house now! At Capitol Equity Mortgage, we are very passionate about the Reverse Mortgage Product and the option that it gives seniors 62 and older. With retirements dwindling in the stock market, along with thousands of baby-boomers now in their 60s (most of which are signing up for social security), the Reverse Mortgage Solution is a safe way to fund your retirement. What is a Reverse Mortgage? A loan that allows homeowners 62 and older to access their equity or purchase a home without having to make monthly payments. We can refinance a conventional mortgage (where the client is making a monthly payment), payoff their existing mortgage and the client will have no more mortgage payments for as long as they live in the home. This is a federally regulated program, insured by the Federal Housing Administration. This insures the bank and homeowner’s security. If the bank goes out of business, FHA will take over their loan. If the reverse mortgage ever exceeds the amount of what the home sells for, the home seller, heirs or the estate will never owe more than the home’s value. There are several reasons seniors are purchasing homes with the reverse mortgage product. Here are just a few: 1. Current home is too big for upkeep and the homeowner would like to downsize. How would they do that? Sell their current residence, take the proceeds of the sale and use it as a down payment on a smaller home. The reverse mortgage will pay the difference and the client will in most cases be in a newer, smaller home (less upkeep) with no mortgage payments! 2. Homeowner would like to move closer to their children. Sometimes their children live in an area where the cost of purchasing a home would be to expensive. Again, we would sell the current residence, take the proceeds from the sale and use it as a down payment on their new home (closer to their children) and use the Reverse Mortgage Loan to cover the rest. All the while the client will not have to make any mortgage payments for as long as they live in the new home. 3. Homeowner would like to buy the home of their dreams. In many cases homeowners have free and clear homes or have equity but would like to buy in a nicer neighborhood or buy a bigger house. They have never explored this option because home prices have gone up and they do not want to take on any additional debt. In this instance they would sell their current residence, put all of the proceeds from the sale as a down payment on the more expensive home and use a reverse mortgage to cover the difference. Again, the client will move into a bigger, nicer home with no mortgage payments. ~ Eric Ellsworth, Capitol Equity Mortgage Dear Eric: My 84-year-old Mom did a “traditional” reverse mortgage on her home a few years before the real estate market committed suicide. Even so, she worries that she’ll outlive her monthly mortgage payments and figures she has to bite it within 10 years. Ask Miki is a column of opinion and entertainment, and anything herein is not intended for real estate, financial, legal, or tax advice. You may contact real estate agent Miki Garcia at email@example.com.