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Real Estate Secret - Purchase Reverse Mortgage for Your Dream Retirement Home

Didier Malagies • June 30, 2021


Real Estate Secret - Purchase Reverse Mortgage for Your Dream Retirement Home

 


What do you mean, the Purchase Reverse Mortgage? Yes, you can use a reverse mortgage to purchase your dream retirement home


(No way! Yes, way!)

Most people are unaware of this, but in 2009, as part of HERA (Housing Economic Recovery Act), an entirely new reverse mortgage was created specifically to assist potential homebuyers, 62 years of age and above, the HECM for Purchase.


Commonly referred to as the "Purchase Reverse Mortgage," this product allows people, entering the retirement portions of their lives, to maintain tens of thousands, and in many cases hundreds of thousands of dollars in liquidity, while still not being obligated to a monthly principal and interest payment. *

(*Real estate taxes, homeowner's insurance, and HOA fees must be paid separately)


Getting a Dream Retirement Home with a Reverse Mortgage?


So, is the Purchase Reverse Mortgage the answer to purchasing your "dream retirement home?" To answer that question factually, you would need to know exactly what a HECM for Purchase, commonly referred to as the Purchase Reverse Mortgage, truly is…

Simply put, a purchase reverse mortgage allows potential homebuyers, 62 years of age and above, to purchase their dream retirement home without the obligation of a monthly principal and interest payment for as long as at least one of the borrowers maintains the home as their primary residence. 

Unlike the traditional reverse mortgage, where the client owns a home and wishes to draw equity from it, the Purchase Reverse Mortgage furnishes the client with a single lump-sum payment upfront. (At the point of sale)

The combination of this lump sum and your investment, in other words, your down payment, allow the seller of the property to be paid in full.


What are the Results?

The combination of this lump sum and your investment, in other words, your down payment, allow the seller of the property to be paid in full.

You have purchased your dream retirement home, achieving your goal of having no monthly principal and interest payment and retain tens of thousands, if not hundreds of thousands of dollars in liquidity.

Example:

  • The Old Way - You purchase your dream retirement home for $300,000 cash

Your goal: to live in retirement free of a monthly principal and interest payment

  • The New Way

Your down payment is approximately $150,000.00*

You secure a purchase reverse mortgage for the remaining funds. ($150,000)

  • Results

You now own your dream retirement home - and you have retained $150,000.00 in liquidity to enhance the quality of your life.

*down payment is calculated based on both borrowers being 65 years old.

Actual down payment and retention of funds vary depending on the age of the youngest borrower, purchase price of the home, and interest rates at that time. Rates and terms are subject to change without notice.

Your reverse mortgage remains in effect as long as the original borrowers maintain the home as their principal residence.


The Hard Truth

So many people approaching retirement have been negatively affected by the volatile economic times in recent years. In fact, record-breaking low rates of returns on savings, CD's and annuities combined with losses taken in investment portfolios have negatively affected literally millions of seniors in this nation.

Imagine if, instead of paying cash for your retirement home, you retained 50% of the home's purchase price!

Let us use the example above.

How do you think your life would be affected if you had an "extra" $150,000.00 in cash reserves right now? And still, had no monthly principal and interest payment on your home?

  • What if it was a $400,000 home and you retained an extra $200,000.00?
  • What if it was a $500.000 home and you retained an extra $250,000.00?
  • What if it was a $600,000 home and you retained an extra $300,000.00?

I think you get the point!

Before we discuss what you possibly could do with this extra/newfound money, let us answer some basic reverse mortgage questions:


Will I Retain Ownership of My Home?

Yes, you retain title to your home during the period when you have a reverse mortgage, just the same as with a regular home mortgage. The reverse mortgage lender is merely extending a loan to the borrower. 

Because the homeowners retain the title, they remain responsible for paying property taxes, hazard insurance, and maintaining the home in reasonable condition, just as they would with a standard first mortgage or home equity loan.


Is the Interest Rate Fixed or Variable?

You can choose either a fixed or variable rate for your reverse mortgage.


When Does This Reverse Mortgage Come Due?

When none of the original borrowers remain in the home, the loan is due, or you may choose to pay off the loan early, as there is never a prepayment penalty. 

The family or heirs can sell the house or refinance the house and pay off the property's loan. So, as you can see, today's FHA-insured reverse mortgage offers protections and safeguards for seniors like never before.


Will My Current Income Affect My Ability to Secure a Purchase Reverse Mortgage?

There are income qualifications for receiving a reverse mortgage, but they are not as strenuous as those in the conventional or forward mortgage world.


Is My Credit a Factor When Securing a Purchase Reverse Mortgage?

Yes, A history of not meeting your financial obligations may adversely affect your ability to secure a reverse mortgage.


How Safe is the FHA Insured Purchase Reverse Mortgage?

They are as safe as any other government-insured loan. You or your heirs retain ALL ownership rights. You continue to own your home. It is impossible to fall behind on monthly principal and interest payments because there are none to make. 

Reverse Mortgages are "non-recourse" mortgages, which means that a debt CANNOT be passed to your heirs due to doing an FHA-insured reverse mortgage.



Options for the Extra Cash

So now that we know we can retain tens of thousands, and in most cases, hundreds of thousands of dollars in liquidity by using the purchase reverse mortgage, what are the possible options for this windfall of liquidity?

So much money, so little time!

  • You could just give these extra funds to your financial planner and ask him to invest the money in something with little to no risk that can grow over time.
  • You could purchase a single premium life insurance policy with a long-term care insurance option.
  • You could purchase traditional long-term care insurance and make monthly payments. (Afterall, you don't have a monthly mortgage payment)
  • You could purchase a MedicareSupplemental Policy if you are 65 years old or above.
  • You could utilize in-home care services if the need is immediate or arises in the future.
  • You could purchase other products or services to make the retirement portion of your life the highest quality possible!
  • You could "gift" some of these funds to your children or grandchildren, who could use the help now rather than in the future.
  • You could travel more.
  • You could buy a new Corvette! (Have you seen the new ones?)

I'm sure you can think of many other ways to enjoy this type of windfall.

(I just wanted to give you a few ideas…)

So now that we have learned what we could do with an extra couple of hundred thousand, what could we do with an extra million, or two million dollars?



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Habitat for Humanity sees success with aging in place program

By Didier Malagies • January 22, 2025
A dedicated aging in place (AIP) program offered by the Oswego County Habitat for Humanity (OCHFH) in New York says it is seeing success by incorporating family, community and local resources to ensure older homeowners can remain where they prefer. “It’s been projected that, over the next 20 years, households led by individuals in their 80s will become the fastest growing age group , which provides stability within their communities,” said Samuel Raponi, OCHFH executive director. Through the organization’s AIP program, Habitat collaborates with families, local organizations and other community members in an effort to provide homes that prioritize living for older adults, he said. “This ultimately enhances their quality of life. We employ two different assessments in each case to ensure that the homeowners’ needs are clearly understood,” he added. An initial assessment of the client’s living situation aims to assess each person’s daily living activities, which are scrutinized by a “health or human services professional,” the organization said. This includes how they manage regular tasks like cleaning, shopping, paying bills or interacting with their community. A second evaluation specifically assesses home repair needs, and how to make a dwelling more livable for the needs of an older person. “These assessments enable OCHFH to provide modifications to their homes tailored to each homeowner’s specific lifestyle,” Raponi added. “Among the kinds of modifications we make are installing lever door handles, ramps, railings, grab bars, walk-in showers with a low threshold, and raised toilets to make homes more accessible for older adults.” Other resources, including Meals on Wheels , may be seen as necessary to deploy depending on a person’s circumstances, and all combine into a living situation that is aimed at being more generally beneficial for someone seeking to age in their own home. AIP is actively seeking more collaborative partners in the health care sector, owing to unique challenges visited upon older people who may not be able to adequately address their health needs. “Low-income older adults face a higher risk of chronic diseases and disabilities due to limited access to primary care and a greater likelihood of living in substandard, deteriorating housing,” Raponi added. A recent study from Carewell suggested that many older adults see aging in place as a financial necessity considering the costs of other kinds of living arrangements older people may choose. Nearly half of respondents (47%) characterized aging in place as both a preference and a financial necessity in tandem. 

Is it time to prequalify for a mortgage now

By Didier Malagies • January 20, 2025
1. Assess Your Financial Health Credit Score: Check your credit score (usually 620 or higher is required, though higher scores get better rates). Debt-to-Income Ratio (DTI): Calculate your monthly debt payments compared to your gross monthly income (lenders typically prefer a DTI below 43%). Savings: Ensure you have enough for a down payment (typically 3-20%) and closing costs. 2. Gather Financial Information Lenders will need the following: Proof of income (pay stubs, tax returns, W-2s/1099s). List of assets (savings, investments, retirement accounts). Details of current debts (credit card balances, student loans, etc.). 3. Choose a Lender Research different lenders, including banks, credit unions, and online lenders. Compare prequalification options (many allow online applications). 4. Complete the Prequalification Process Fill out the lender’s prequalification form (online, over the phone, or in person). Provide basic details about your income, debts, and assets. 5. Review Prequalification Results The lender will give you an estimate of the loan amount and potential interest rate. Remember, prequalification is not a guarantee of approval and doesn’t involve a hard credit inquiry. 6. Follow Up with Preapproval If you’re serious about buying, consider getting preapproved, which involves a more in-depth review and is stronger than prequalification. Tips: Use online calculators to estimate affordability before reaching out to lenders. Avoid large purchases or opening new lines of credit during the prequalification and preapproval process. Would you like details on specific lenders or tools to compare mortgage options? tune in and learn at https://www.ddamortgage.com/blog didier malagies nmls#212566 dda mortgage nmls#324329

USA Today: If Social Security falters, reverse mortgages could be worth a look

By Didier Malagies • January 13, 2025
Many retirees have said they rely largely — and sometimes entirely — on Social Security benefits as their primary income stream in retirement . But in instances where these payments may not be enough to make ends meet, other options should be considered — and in the right situation, a reverse mortgage could be one such option.  That’s according to a column published this week by USA Today , which assessed reverse mortgages in tandem with options such as personal savings, a part-time job and other benefits programs. “A reverse mortgage is a possibility for seniors with substantial equity in their homes,” the column stated. “It essentially enables you to borrow against your equity, and you aren’t required to make any payments while you’re still alive as long as you live in the house.” The column is likely referencing the Home Equity Conversion Mortgage ( HECM ) program insured by the Federal Housing Administration (FHA). Loan proceeds are dependent on the amount of equity in the home and current interest rates, the column noted, and there are multiple disbursement options available, the column noted. The minimum age requirement of 62, a core tenet of the HECM program, was also mentioned. “There are closing costs and other fees, and you’ll still be responsible for maintaining the property and paying the property taxes and homeowners insurance,” the column noted. It characterized the loan as a “solid option” for those who have few other assets beyond their homes, adding that “it might not be the right move if you intend to pass the property on to your heirs someday. After you pass away or move out of the home, you or your estate will have to repay the loan. This will reduce how much your heirs receive.” Recent survey data from Clever Real Estate highlighted some realities of relying on Social Security benefits in retirement. Roughly one in five respondents in the 1,000-person survey said they rely exclusively on Social Security benefits as their sole income stream in retirement, with nearly 30% saying they believed they would be able to rely on them. Last year, data from Nationwide suggested that an increasing number of older investors believe that retiring at the age of 65 is no longer a realistic option . This is largely tied to higher levels of stress they’re feeling about the economy and the cost of living.
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