Using a reverse mortgage to help seniors with a home purchase
When I attempt to discuss reverse mortgages with real estate professionals, a high percentage of them tend to want to avoid the topic because they obviously are not familiar enough with the reverse mortgage products to be able to discuss their suitability for their clients. If you are a real estate professional that assists the rapidly growing seniors sector, you need to know about reverse mortgages.
Unlike regular mortgages that have principal and interest payments for the term of the loan, a reverse mortgage has no principal or interest payments due for the life of the borrower. And, prospective reverse mortgage borrowers do not have their qualifications based on income or credit scores.
A reverse mortgage may be used to refinance the currently owned residence in order to eliminate mortgage payments or to create a source of income. However, it is important for real estate professionals to know about the options available to seniors that want to purchase a more suitable primary residence.
Our friend Chris Warner is a reverse mortgage loan consultant. Chris provided a couple of examples of how a Reverse for Purchase can be used.
“Understanding the Reverse for Purchase program can get you more listings, more sales and, potentially, larger commissions. Here are two examples of how a Reverse for Purchase can be used:
1. You have a borrower (or borrowers) who would like to downsize. The borrower is 62 and lives in a home worth $500,000 that has a $200,000 mortgage on it. She is interested in a home selling for $350,000 but cannot qualify for a mortgage greater than $200,000 because she won’t have income to carry a larger mortgage. Instead, they could place a reverse mortgage on the home they wish to buy. That reverse mortgage includes all of the closing costs so she needs only enough money for the down payment. Based on her age and interest rates she needs about $150,000 which comes from the proceeds of her home sale. She will now be able to live in this home with no mortgage payment . Her obligation is to continue to keep the home insured, to pay the property tax and maintain the property. You get a listing and a sale.
2. You are working with a couple who wants to upgrade their home. They are both 74. Their current home is worth $400,000 and has no mortgage. The only homes you have shown them, based on their income, sell for just over $400,000. They have not liked any of the homes you have shown them but they have seen a home they love selling for $600,000. With a Reverse for Purchase this couple could buy this home with a down payment of about $210,000. Again they can live there without need for mortgage payments. You get a listing and a sale and a larger commission.
The borrower who uses a Reverse for Purchase is not qualified based on income or on credit scores. We do have to verify that the funds for the down payment are not borrowed. Most often, the funds for the down payment come from the proceeds of the sale of the home they are leaving. But one does not need to own a home to use the Reverse for Purchase. As long as the borrower has sufficient liquid funds for the down payment, they can take advantage of this terrific product.”
Chris Warner, Reverse Mortgage Consultant, Bethesda, MD
NMLS #506543 SECURITY1LENDING Phone: 202-560-2931, Chris.Warner@S1L.com
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