Buck Wargo Buck Wargo, Sr. Editor NowItCounts.com St. Louis Couple Uses HECM Mortgage To Buy Dream Home In Florida Posted: 06/26/2015 11:36 am EDT Updated: 06/26/2015 11:59 am EDT
Andy and Beatrice Hollimon had endured Midwest winters for decades, and it was time to fulfill their dream of moving south. "We owned our home in St. Louis area for quite some time, and we vacationed in South Florida the last five to six years," Andy says. "We were looking to change locations for retirement and were zeroing in on the geographic region that we preferred." Andy had worked in human resources management for 40 years and later worked as an adjunct instructor and business administration department chair at Stevens -- The Institute of Business & Art. He had worked hard, and they wanted to buy their dream retirement home without dipping into their retirement savings and investment income. They didn't even think it was possible to get the type of home they ended up buying until watching a television commercial on HECM mortgages.
"I had seen the Fred Thompson AAG advertisements thousands of times, and even the other ones with Henry Winkler," Andy says. "One day I was watching and ran across the commercial and thought, 'Let me give them a buzz.' I had no knowledge of the reverse mortgage process. I called, and the guy on the phone did a pretty good job of screening out my need. He asked if I wanted to do a reverse mortgage refi or purchase. I asked what the difference was. He defined them for me. I told him I owned a home in St. Louis, so we should talk about purchase. He transferred the call, and everything ensued from there. He walked me through as a new caller with no knowledge of HECM For Purchase." This form of reverse mortgage required them to put up only a portion of the purchase price, and the reverse mortgage would cover the rest. They would be responsible for the property taxes, insurance and homeowner's association dues. The move ended up enabling the couple to retire 10 years sooner than they thought they could (Beatrice had planned to keep on working). After deciding on this type of loan, they jumped at the chance to purchase a home before prices rose again. A friend had moved to South Florida with his wife who's a realtor. When he found out the Hollimons were going to be vacationing down there and looking for home, he had his wife take them around in June 2014. "We lived in a small three-bedroom home since 1979, and it was nicely remodeled and 1,300 square feet," Andy says. "We were planning on a smaller villa or even renting a home or something like that in Florida. But when we came down here last June, we ran across properties that piqued our interest that were larger. Some were in gated communities and some were on golf courses, but I don't golf."
In December, the Hollimons happily moved into their 2,000-square-foot, three-bedroom home in Lake Worth, 56 miles north of Miami. The couple had lived since 1979 in their St. Louis home, which had three bedrooms and had reached a value of $160,000 before the subprime crisis. The house dipped substantially in value before increasing back up to $115,000 when the housing market recovered. The Hollimons had a small home equity loan on the St. Louis home and wouldn't be able to capture the full amount from the sale. Their home in Lake Worth measures 2,000 square feet, and they acquired it for a price of $275,000, some $5,000 less than the owners were seeking. To purchase the home, the Hollimons needed to put up 55 percent or about $141,000. Knowing they would get less than that from the sale of their home in St. Louis, the purchase would mean dipping slightly into their investment portfolio. "If I would have needed to take a whole lot more in investment income, I wouldn't have purchased that nice of a home," Andy says. "I only wanted to deplete my investment portfolio to a certain level. I'm a frugal guy, and it broke my heart to do that much." They were willing to do that, however, knowing that they would never have to make a mortgage payment, and because they weren't worried about the need to leave their home to someone when they died. "We don't have a large family," Andy says. "My daughter is pretty well squared away in her home and income, and we didn't have any interest in leaving a home to family members. They have the right to purchase it once we are out of the property, but I doubt my daughter would do that."
Andy says that made him stop and think -- since he didn't have to worry about leaving their home to anyone, it was time for the couple to follow their desires. "We were going to follow our dream and seek our dream location," says Andy, who spends his retirement writing and painting. "If you have the financial ability, you have to reach for what you want. We decided to do that." COMMENT FROM BOB ADAMS: While the Hollimons were not concerned about leaving equity for children after they are gone, don t take that to mean there won t be any! In fact, unless at least one of them lives an extraordinarily long time and there is no appreciation in the property value at all, there should definitely be some cash out for the estate/heirs. Remember, the reverse mortgage brought 45% to the purchase settlement. They used 55% cash so they start out with 55% equity. It s a pretty sure bet that their daughter will sell the home and reap some cash. These mortgages are just like the traditional mortgage on my home (alas, I don t have enough equity yet for a reverse). When I m gone my kids will sell the house and keep the cash after paying the mortgage balance.