The Home Equity Conversion Mortgage is a financial tool now approved for buying a new home or for downsizing.
Many financial advisors and realtors are using this program to help their clients, 62 and older, to customize a plan for home purchase. This has opened up a whole new market for borrowers who could not otherwise qualify.
This allows age eligible adults to improve their retirement lifestyle by putting more money in their pocket each month by potentially downsizing, moving closer to kids & eliminating burdensome home maintenance. Just as a family can outgrow a home and need more space, in your retirement years it may make more sense to move to a lower maintenance, mature friendly home in size and floor plan. The HECM for purchase is an excellent idea and option for some seniors and boomers.
Many older homeowners are now facing a challenging situation such as Mrs. Morgan:
Dilemma 1—She wants to sell her home but will only net $250,000 from the transaction. She wants to remain in the area with her family, friends and doctors close by. She really needs a $400,000 to $500,000 home but does not want a monthly mortgage payment and would be unable to qualify for a conventional loan on fixed income.
Dilemma 2—Should I wait to sell my home until the value goes back up? Chances are that when the value of your home goes up, so does the home you want to purchase.
Dilemma 3—Maybe I should just sell and rent, but can I handle apartment living with less privacy and the rents could increase.
With the new HECM for purchase guidelines, a borrower can potentially put down fewer proceeds for their future home, whether upgrading or downsizing. Downsizing examples for a Mr. and Mrs. Johnson
Mr. and Mrs. Johnson are both age 70 and own a home valued at $650,000 with a $185,000 mortgage.
After commissions, closing costs, mortgage payoff. the Johnson’s retain an estimated $430,000 from their sale.
Instead of paying cash for their new retirement home, the Johnson’s can:
A—Purchase a $430,000 home by putting down a one-time payment of $156,000 and financing the balance of $274,000 with the HECM for Purchase and have no house payments for the life of their loan.
They can take the balance from the sale of $304,000 as principal residence tax exempted proceeds to use for retirement resources or any needed upgrades. (Internal Revenue Code 121 principal residence sale tax exemption; consult your tax advisor to also calculate any capital gain taxes).
B—They can purchase a $430,000 home with the cash proceeds from the sale and then take out a HECM reverse mortgage, qualifying for $274,000.
They can either set up a line of credit or have a monthly payment (or both) that is liquid and tax free. The unused portion of the credit line grows at the same rate as the loan rate.
For more information, contact Bill Barham Security One Lending, at (949) 429-3109, at (877) 429-3109 toll free, or e-mail Wbarham@s1l.com. Serving Southern California since 2004.
