Head on to ActiveRain University to watch the recording
*The Realtor and Homebuilder Toolkit for HECM purchase along with the slide deck can be found at the bottom of the recording page
Homebuyers 62+ don’t have to choose between paying all-cash for a new house or taking on monthly mortgage payments to finance the purchase of their next home. With the Home Equity Conversion Mortgage for Purchase, also known as HECM for Purchase, seniors can buy a new principal residence using loan proceeds from a federally-insured reverse mortgage, without taking on a required monthly principal or interest payment. HECM for Purchase gives buyers more flexibility to downsize, upsize, or right-size into a home that makes the most sense for the next stage of their lives.
This Active Rain University webinar features real estate and home financing experts from both coasts who will introduce you to the value of HECM for Purchase and walk you through scenarios when this financial option may make sense for your retired and nearly-retired buyers. A builder’s representative will also discuss opportunities for using HECM for Purchase with buyers who want to build a new home in an active adult community.
In this webinar, real estate and home financing pros will:
- Explain the value of a financing tool that gives Boomers 62+ more options when it comes to buying the right home for the next stage of their lives
- Discuss opportunities for real estate agents and builders to work together to meet Boomer buyers’ needs
- Outline 6 real-life scenarios when it makes sense for Boomer buyers, and sellers, to consider HECM for Purchase
- Provide an overview of how HECM for Purchase works and resources for learning more about it
- Answer your questions live during the Q&A
Moderator: Bob Stewart ActiveRain
Scott Degnan Realtor® MyHomeGroup, San Diego, CA
Scott Owens General Manager Lake Ashton Development Group, Winter Haven, FL
Chris Bruser Certified Reverse Mortgage Professional Retirement Funding Solutions Tampa, FL
Christina Harmes Certified Reverse Mortgage Professional C2 Financial San Diego, CA
On April 24, 2018, ActiveRain University welcomed the National Reverse Mortgage Lender's Association (NRMLA) for an amazing webinar that promised to be a big boon for agents and Baby Boomers alike! Our very own Bob Stewart welcomed a panel that consisted of Certified Reverse Mortgage Professionals, Christina Harmes and Chris Bruser, as well as the two Scotts, Scott Degnan, Realtor® from MyHomeGroup in San Diego and Scott Owens, General Manager of the Lake Ashton Development Group. Together the panel discussed Home Equity Conversion Mortgage (HECM for brevity) for purchase, a valuable financing tool that allows Boomers 62 and up more options when it comes to buying the right home for the next stage of their lives!
Christina kicked off the webinar by discussing the opportunity that agents seem to be ignoring, sure Millennials have surpassed the boomers as the largest generation today, but boomers remain a significant slice of the real estate market's pie:
- 10,000 People turn 62 everyday
- There are over 75 million Boomers in America today
- 80% of boomers are homeowners
- 25% of homebuyers are age 60+
What do these stats mean? Christina explains that millennials are great as they are new homebuyers and you can get that purchase, BUT with boomers, you not only get the purchase, you're also going to get the sale of their current homes.
HECM For Purchase Scenarios & Strategies
To jog the memory of everyone who might have had clients that could take advantage of HECM for purchase, Christina passed the floor to Scott Degnan, a Realtor® with first-hand experience of how HECM for purchase can really help you service boomer clients. As a lender turned broker, Scott came from a background where he worked with a lot of mortgage financing tools, and he has found that HECM for purchase allows you not only to sell more homes but place your clients in a better situation for later down the road for retirement.
Scenarios where HECM for Purchase can help your clients include:
- Offering flexibility to retirees who want to sell and move
- Buying the home they really want in a location they want
- Working with a builder and considering new construction
- Creating liquidity for investments
- Relocating to be closer to grandkids
- Moving on after later-in-life divorce
What is HECM for Purchase
Before going into specific scenarios, Scott called on Chris Bruser to explain exactly what HECM for Purchase is:
- Home Equity Conversion Mortgage for Purchase or H4P for short
- An innovative FHA mortgage introduced in 2009
- Designed specifically for anyone 62 or older
- Dramatically increases your buyer's purchasing power
What is the Difference Between H4P and Traditional Reverse Mortgage
To make sure everybody was ont he same page, Chris went on to discuss the difference between H4P and the traditional reverse mortgage. While H4P does have characteristics of a reverse mortgage it is distinctly different
- Reverse mortgage is for people who want to stay in their existing home and they have built up equity over the years and they would now like to stay in their existing home but they would like to be able to use that equity to be able to improve their current financial and overall quality of life.
- Allows people to access the equity that they have put into the home over the years, but one is not required to make a monthly payment back.
- HECM for Purchase is quite similar but the primary difference is that it is used for someone who is selling their existing home and are going to buy their next home and they're going to use HECM for purchase to make that possible.
How Does HECM for Purchase Work?
- Requires Homebuyers 62 and over to make a one-time cash payment at settlement (approximately 60% of purchase property).
- The older the person is the less equity they have to put down on the purchase price of the new home
- The remaining amount is financed through the HECM loan
- There are no monthly mortgage payments so long as one of the homeowners live in the home
- Loan becomes due when the last eligible spouse permanently leaves the home by moving, selling, passing away, or failing to meet the obligations of the loan
Why is H4P important?
So why is H4P so important, Chris explains the impact of H4p in that before 2009, Boomer buyers only had two options for purchasing their next home. It was either conventional loan with mortgage payments or pay the full purchase price with cash, both options being incredibly impractical for a person in their retirement years
Now thanks to HUD and FHA, there's now a third option. Boomer buyers can now pay a fraction of the full purchase price for their next home. Moreover, they still own the home, they are on the title of the property, but they are making no monthly mortgage payments. They maintain all the rights and privileges of home ownership and those responsibilities, but since they are not using 100% of their cash and they are not making a monthly payment, they are able to preserve capital at a very important part of their lives, where liquidity is of prime importance.
How Does Your Boomer Client Qualify?
- Must be 62 or Better (at least one spouse is)
- For the purchase of a primary residence only
- The downpayment funds must come from their own assets; although gifted funds are allowed they are not allowed to borrow any of the money
- Minimal income qualifications
Property Types that can be Purchased with the H4P Program
The H4P Program is regulated by HUD and insured by the FHA, thus similar to a conventional FHA loan, the property types that can be purchased using this program are very similar. Single family residences (Planned Unit Developments are included), FHA approved condominiums, and although there is no minimum or maximum purchase price, the HECM will be based at the highest amount, the first $679,650 of value.
Chris states that there are four borrower's responsibilies which are similar to the rules they have to abide by in any other circumstance:
- Pay real estate taxes
- Pay Homeowner's Insurance
- Maintain property/pay association fees
- Live in the home as primary residence
Tips to Remember for Real Estate Professionals
- Again the funds must come from the borrower's resources or be gifted; they can come from investment accounts, the equity could come from the sale of their existing home, but the money is documented and thus cannot be borrowed
- Contracts should be clean - no seller's concessions. Although customary seller paids are allowed including home warranties
- Condos must be on the FHA approved list or approvable
- New Constructions have now been made available - applications can now be taken before the certificate of occupancy, but the appraisal must wait for the CO
The remaining time of the webinar was used to discuss the different scenarios where the H4P Program has been used before and the usual Q&A portion so make sure you watch the webinar to find out if you have any potential boomer clients that you can help with the H4P Program!