Here is how it works for a current owner:
Let’s start with the example of the traditional Reverse Mortgage, which is done when someone already owns the home, has equity, and either wants to cash out or pay off their current mortgage without requiring future payments:
So John and Sally are 62 years old.
Their value is 200k, and they owe 100k.
Based on their age they have a benefit (or available loan amount) at approximately 60% of their value, which is 120k in this example.**
SO THEY USE THE MORTGAGE PROCEEDS OF 120K TO PAY OFF THEIR CURRENT MORTGAGE (eliminate their payment) AND CASH OUT THE REMAINING 20K TO USE AS THEY PLEASE.
Of course, if they owe nothing, then they keep the entire 120k.
Reverse Purchase NOT selling another property:
Using the same numbers from above; John and Sally must CREATE THE EQUITY IN THEIR NEW PURCHASE of a 200k house to qualify for the Reverse Mortgage for Purchase.
What does that mean?
If they needed 40% equity in the previous example, which was 80k of the 200k value, to qualify for the Reverse Mortgage Refinance, then their new down payment is 80k. They have just created the 40% equity with the down payment.
They will never need to make a payment on the NEW 120k mortgage because it will be a Reverse Mortgage!!!
Of course, they would need access to 80k in a current retirement fund and/or cash that they can use for the purchase.
With this example you may have converted a listing into a purchase, but you can keep the listing in your back pocket until the market rebounds. All the while you have given your client a new way to achieve their goals. They will always remember you and tell their friends about what you did for them.
COMMON MISUNDERSTANDING: Some people explain this as something more complicated than it is. They say, “You have the down payment plus closing costs,” and it scares them because they think it 40% plus closing. So when I gave the figure of 80k, that 80k INCLUDES ALL closing costs. It’s hard to visualize, but if and when I sit down with the borrower I can explain it in very easy terms.