How To Purchase A Home With A Reverse Mortgage

By
Mortgage and Lending with AmeriFirst Financial Inc, San Diego, CA NMLS 259027

How to purchase a home with a Reverse Mortgage is a topic that all Real Estate Agents and Financial Planners should become familiar with. As the Baby Boomers continue to mature, this particular strategy will become more popular. Consider the following economic facts to support this claim.

  • Retiree's are typically on a fixed income (many have no ability and/or desire to re-enter the workplace now that they have retired)
  • Most fixed income methods do not maintain the pace of inflation over time (thus weakening the precious dollars earned each month against their purchasing power)
  • Many Seniors lost a significant portion of their retirement savings during the 2007-2010 time period due to the deterioration of the stock market
    • Losing this money has reduced their monthly income
    • Losing this money has reduced their liquidity and net worth 

How To Purchase A Home With A Reverse Mortgage

 

How to purchase a home with a Reverse Mortgage - Overview

  • $625,500 loan limit (in all counties throughout the United States)
  • Loan-to-Value (LTV) limits will vary depending on the lowest age of all Borrower's on the Title of the home
    • The lower the age, the higher the down payment requirement
    • Example: 62 years old is roughly 62% LTV (38% down payment) where 70 years old is roughly 66% LTV (34% down payment)
  • There are options with both fixed interest rates and adjustable interest rates (contact me for a quote on any specific day)
  • All Reverse Mortgages carry an annual Mortgage Insurance (roughly 1.25%)
  • There are no additional servicing fees typically
  • Eligible property types include: SFR's, PUD's, FHA approved condominiums
    • Note: no units are allowed on Purchase Reverse Mortgages (Refinance Reverse Mortgages allow up to 4 units, providing the Borrower clearly occupies one of these units as their primary residence)

How to purchase a home with a Reverse Mortgage - Specific Benefits

  • Perfect for Borrowers who would like to purchase a new home without making a monthly mortgage payment ever again
  • Great for Borrowers who are downsizing, moving to a single-level home, and/or who need to leverage their limited cash
  • An affordable method to move to a 50+ age community and/or to be closer to family
  • A financial tool to allow Seniors who are selling their current property (and obtaining a net profit from this sale) to leverage themselves into a more suitable home without using all of their money to "pay cash" for this home in an effort to avoid making high mortgage payments
  • If there is negative equity at the time the last Borrower on Title leaves the home permanently, the heirs and/or estate is not responsible for paying the negative equity amount (it instead is forgiven entirely under the terms of the contract)

How to purchase a home with a Reverse Mortgage - Eligibility and Occupancy

  • Homeowners maintain their obligation to pay their own Homeowners/Hazard Insurance, Property Taxes, and Homeowners Association (HOA) Dues (if applicable)
  • Borrower's must occupy the property as their primary residence within 60 days of closing
  • New Construction projects where no Certificate of Occupancy has been issued are currently not eligible
  • No Concessions are allowed by any parties (i.e. Sellers, Agents, Builders, Lenders)
  • No Gift of Equity transactions (program will use lesser of sales price or appraised value to determine eligibility amounts)
    • Example: property value = $250,000
    • Seller wants to sell property via gift to relative for only $150,000
    • Program eligibility would be based off the $150,000 sales price in this situation
  • All Reverse Mortgages require a property inspection (with the possible exception of New Construction)
  • Seller is responsible for all repairs prior-to-close

How To Purchase A Home With A Reverse Mortgage

How to purchase a home with a Reverse Mortgage - Qualifying Parameters

  • Minimum age of all Borrowers/Buyers on Title is 62 years old
  • Credit Scores are not a factor, although certain credit history's can disqualify an applicant
    • No Foreclosures or 120 Day Mortgage Lates within the last 3 years
  • Chapter 7/13 discharged Bankruptcies (and even late payments after BK) are allowed
  • Non-Borrowing Spouse must have credit pulled in order to review for financial obligations, judgments or liens which could jeopardize the loan approval

How to purchase a home with a Reverse Mortgage - Eligible Funds-to-Close (Down Payment, Costs, etc.)

  • Allowable sources of funds can come from the following (which would require a 90 day "seasoning" of funds):
    • Savings/Checking
    • CD's and/or Investments
    • Retirement Account Withdrawal
    • Gift Money (from relative, employer, labor union, charitable organization, government assistance program, or close friend)
      • Note: The Gift Donor may not be a person or entity with an interest in the sale of the property or party to the transaction
  • Allowable sources of funds can also come from a recent/pending sale of a home
    • A copy of the HUD-1, fully executed (by all parties) purchase contract and certified funds may be used to verify funds from the sale of a home
  • Non-Allowable sources of funds include:
    • Credit Cards
    • Seller Contributions (remember, no contributions are allowed by any party)
    • Bridge Loans, Subordinate Financing, Personal Loans
    • Cash-Out Refinances from other properties
  • The rule of thumb is that you cannot "get a loan to get this loan"

All applications for a Reverse Mortgage will be considered on a case-by-case basis, so please use the above guidelines as a reference tool only.  Mortgage underwriting guidelines are constantly evolving, so there is always a chance that some changes have been made between the writing of this post and the present day. For more information about the Purchase Reverse Mortgage Product, click here for information directly from HUD.

Please feel free to contact me at jgordon@amerifirst.us or call 619-200-8031 or visit www.jasongordon.net for more information on how to purchase a home with a Reverse Mortgage.

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For more information on topics like this, please feel free to visit www.GordonMortgage.com (an educational resource for Borrowers, Real Estate Agents, and Financial Professionals). Educational content provided by:

Jason E. Gordon

Sr. Mortgage Loan Officer

CMPS, CDPE, CMC, NMLS 259027

AmeriFirst Financial, San Diego Residential Mortgage Specialist, Jason E Gordon

Office: 619-200-8031

Email: jgordon@amerifirst.us

www.GordonMortgage.com

 

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AmeriFirst Financial Jason Gordon

 

Licensed by the Department of Corporations under the California Residential Mortgage Lending Act.

AmeriFirst Financial Inc., 1550 E. McKellips Road, Suite 117, Mesa, AZ 85203 (NMLS #145368) Toll free phone (877) 276-1974. Copyright 2012. All rights reserved. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates, and programs are subject to change without prior notice. All products are subject to credit and property approval. Not all products are available in all states or for all loan amounts. Other restrictions and limitations may apply. AmeriFirst Financial is required to disclose the following licensing information. Please click here for licensing information. 

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Rainmaker
578,858
Mark Loewenberg
Keller Williams of the Palm Beaches - Palm Beach Gardens, FL
PA 561-214-0370

a very scary concept until it is fully understood by both seller and agent, then when the lightbulb goes on, it can turn into a win win!

Apr 28, 2012 06:07 PM #1
Rainmaker
318,507
Jason E. Gordon
AmeriFirst Financial Inc, San Diego, CA - San Diego, CA
Residential Mortgage Specialist, CMPS, CDPE, CMHS

Agreed Mark. Mark my words that the "Purchase Reverse Mortgage" will become a common practice moving forward. You can literally make it a niche moving forward and pull another 5-10 closings per year (while making your clients very happy). Good luck!

Apr 29, 2012 12:11 PM #2
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Rainmaker
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Jason E. Gordon

Residential Mortgage Specialist, CMPS, CDPE, CMHS
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