A GUIDE FOR REALTORS Using a Reverse Mortgage to Purchase a Home This material has not been reviewed, approved or issued by HUD, FHA or any government agency. RMNW is not affiliated with or acting on behalf of or at the direction of HUD /FHA or any other government agency. Reverse Mortgage Northwest is a division of Pacific Residential Mortgage, LLC. NMLS-1477. Equal Housing Lender, NMLSConsumerAccess.org.
TABLE OF CONTENTS Who is Reverse Mortgage Northwest?... Page 2 What is HECM for Purchase?... Page 3 What s different about HECM for Purchase?... Page 4 Wouldn t your client s like protection?... Page 5 How are loan amounts calculated?... Page 5 Who is your buyer?... Page 6 What properties are generally eligible?... Page 7 What properties are not generally eligible?... Page 7 Writing the contract... Page 8 Qualified Reverse Mortgage Specialists... Page 9 Conclusion... Page 10 Page 1
Who is Reverse Mortgage Northwest? Reverse Mortgage Northwest is part of Pacific Residential Mortgage, one of the Northwest s leading mortgage banks since 2004. We are your local experts specializing in helping senior borrowers and their families understand and navigate the complexities of a reverse mortgage. We have been trusted with more reverse mortgages than any other reverse mortgage group in Oregon for three straight years. We will take the time and provide the guidance to ensure this step is taken in a professional and friendly manner, and that you have an outstanding lending experience. Other mortgage companies include reverse mortgages as just another option in their portfolio of offerings. At Reverse Mortgage Northwest, it s all we do. We concentrate our expertise on understanding the details and developments of these loans, ensuring our clients get trustworthy information and dependable service. Reverse Mortgage Northwest focuses exclusively on reverse mortgages, providing counseling to seniors and creating awareness to help them use their own equity to live more comfortably. Page 2
What is HECM for Purchase? We will take the time and provide the guidance to ensure this step is taken in a professional and friendly manner, and that you have an outstanding lending experience. A Home Equity Conversion Mortgage (HECM) for Purchase is a reverse mortgage that allows seniors, age 62 or older, to purchase a new principal residence using loan proceeds from the reverse mortgage. The HECM for Purchase Program provides the opportunity to purchase a new principal residence with HECM loan proceeds in a single transaction. The HECM loan does not require mortgage repayment until the borrower leaves the home permanently. With this great opportunity, you are opening your agency to a whole new source of buyers and sellers! A reverse mortgage is a very complex financial tool. When deliberating whether its a good fit for your clients, guiding you is best left to the experts with the most experience. We have a responsibility to ensure this program is a great fit for each client. Page 3
What s different about HECM for Purchase versus a regular mortgage? HECM for Purchase: Exclusively for home buyers age 62+. Regular Mortgage: No age restriction (except being legal age to enter a contract). Repayment requirements HECM for Purchase: The borrower can choose to repay as much or as little as they like each month, or make no monthly mortgage payments. The flexible repayment feature makes it easier for a buyer to afford the home they really want, preserve more savings and retirement assets, and improve cash flow. As with any mortgage, the borrower must keep current with property-related taxes, insurance and maintenance as part of their ongoing loan obligations. Repayment is generally required once they sell the home, pass away, move out, or fail to meet their loan obligations. We have been trusted with more reverse mortgages than any other reverse mortgage group in Oregon for three straight years. Regular Mortgage: Monthly principal and interest payment required. Builds equity as the loan is paid down. Down payment amount HECM for Purchase: Required down payment between approximately 29% and 63% of the purchase price, depending on buyer s age or Eligible Non-Borrowing Spouse s age, if applicable. (This range assumes closing costs will be financed.) The rest of the funds for purchase come from the HECM loan. This allows the buyers to keep more assets to use as they wish, as compared to paying all cash, while still having the flexibility of no required monthly mortgage payments. See minimum required down payment examples on the next page. Regular Mortgage: Typically requires a smaller down payment. Page 4
Wouldn t your clients like protection against owing more than their home is worth? HECM for Purchase: A Federal Housing Administration (FHA) insured* program, HECM for Purchase has a non-recourse feature, which means the borrower or their heirs can never be required to repay more than the home is worth when the loan becomes due. The home is the only source of repayment regardless of the loan balance at maturity. Regular Mortgage: Source of repayment regardless of the loan balance at maturity. Most do not have a non-recourse feature. Since home values can decline, the borrower could end up owing more than the home is worth. How Are Loan Amounts Calculated? The buyer s minimum required down payment generally works out to be about 29% to 63% of the sale price. This calculation is determined by the Department of Housing and Urban Development (HUD). These are age-based loans that allow older borrowers to qualify for more in loan proceeds (see chart below). AGE Amount of Down Payment Required 72 152,700 178,150 203,600 216,325 229,050 72 140,700 164,150 187,600 199,325 211,050 67 134,400 156,800 179,200 190,400 201,600 62 124,200 144,900 165,600 175,950 186,300 PRICE OF HOME 300,000 350,000 400,000 425,000 450,000 Example shown is for illustrative purposes only. Actual down payment amounts vary based on interest rate, borrower age and other factors. This range assumes closing costs will be financed into the loan. Closing costs include an up-front mortgage premium of 2% of the property value and can include other lender and third party closing costs such as an origination fee, title insurance, appraisal fee, credit report fee and recording costs, among other costs. In addition to initial MIP, closing costs typically range from $10,000 to $15,000. Ask your lender or mortgage originator for more details. Page 5 This material has not been reviewed, approved or issued by HUD, FHA or any government agency. RMNW is not affiliated with or acting on behalf of or at the direction of HUD /FHA or any other government agency. Reverse Mortgage Northwest is a division of Pacific Residential Mortgage, LLC. NMLS-1477. Equal Housing Lender, NMLSConsumerAccess.org.
HECM for Purchase: Who is your Buyer? HECM for Purchase is best for those who are age 62+ and: Are ready to downsize, up-size, move closer to family, move to a senior community, or buy their dream home and don t want to take on a required monthly mortgage payment. They live on a fixed income; are concerned about being able to afford a new home via a cash purchase or traditional financing; and/ or want to avoid tapping into their retirement nest egg. Their current home no longer fits their lifestyle - For example, the washer and dryer are down in the basement; the yard is too big to take care of; they need or prefer a one-floor living situation. They want a new home that s a better fit for their physical needs. They want to increase their purchasing power to buy the home they really want, with the amenities they need or desire. They want to preserve some of proceeds from the sale of their home for a cash reserve or other retirement savings. What are the responsibilities of a HECM Borrower? Making monthly principal and interest payments is NOT an ongoing obligation for the homeowner. However, there are a few homeowner requirements that if neglected, could cause a homeowner to be in default on the mortgage. The critical borrower obligations and mortgage requirements include: Occupy the home as their primary residence Keep the property in good repair Payment of property taxes Payment of homeowner insurance Payment of other property charges including, but not limited to flood insurance and HOA dues. Page 6
What Properties are Generally Eligible for HECMs? Single family residence Modular homes Townhomes 2-4 Unit properties Planned unit developments FHA approved condominiums What Properties are Generally Not Eligible for HECMs? Mobile homes Commercial properties Investment properties Cooperative units Working farms Vacation homes How are Borrower Principal Limits Calculated? The initial Principal Limit (PL) is defined as the maximum amount that is available to a HECM borrower at the time of closing. Keep in mind, access to the full PL may be restricted at closing (fixed rate) or in the first year of the loan (adjustable rate). The PL is calculated using a calculation, provided by HUD, that considers two factors - the age of the youngest borrower (or Eligible Non-Borrowing Spouse if applicable) and the expected average mortgage interest rate (Expected Rate). Higher ages generally result in higher principal limits. Higher expected rates generally result in lower principal limits. Page 7 For example: a married couple, age 76 and 75, with an expected rate that rounds to 5.00% will qualify for 47.5% of their home s value up to $636,150.
HECM for Purchase: Writing the Contract When reviewing the contract, Realtors need to make sure these items are noted in the agreement: Contract must include the FHA Amendatory Clause and Real Estate Certification. The contract should not include personal property. HECM proceeds are for the purchase of Real Property. Seller concessions are limited: Seller Closing Costs - Sellers can now pay for fees that are reasonable and customary for the market and typically include: Fees required to be paid under State or local law (transfer taxes). Fees typically paid by a seller in that locale (Owner s Policy, Settlement fee or Escrow fee, deed prep, deed record). Purchase of a home warranty policy by the seller. The contract cannot contain any rent back options. The contract cannot include real estate commission if the Realtor is also the Buyer (their broker can earn commission, broker must identify the Realtor is not earning commission via Letter of Engagement). When the appraisal is ordered, final contract including all pages and amendments must be provided to the appraiser. Including the FHA Amendatory Clause and Real Estate Certification. If the appraisal identifies any repair items, the seller must pay for and complete all repairs prior to the closing of the transaction. The HECM program is used in only a primary residence transaction. Page 8
You have qualified Reverse Mortgage Specialists at your service! When someone is considering a life change such as a home purchase or refinance, it can be overwhelming wading the plethora of lenders offering their services. Choosing the right partner to guide you through this process is key to your experience. Reverse Mortgage Northwest has been ranked #1 for the third straight year out of all reverse mortgage companies in Oregon by the Department of Housing and Urban Development. Jeff Foody NMLS-253303 Jeff began serving the reverse mortgage industry in 2002, at a time when it was a relatively obscure concept. Since then, the industry has evolved to where reverse mortgages are widely understood and often used by thousands of homeowners who are 62 and older. Jeff has been called one of the country s foremost experts on reverse mortgages and frequently presents the benefits to large audiences. He is also a regular speaker at the National Reverse Mortgage Lenders Association convention. His belief in the advantages of reverse mortgages is so strong that even his parents are happily enjoying one of their own. Rick Eckard NMLS-406221 Rick has been active in the real estate and mortgage industry for over 35 years. Rick has that special blend of knowledge, creativity and intense customer loyalty that are common among top producers in the field. No stranger to reverse mortgages, he and his wife purchased a new home using a reverse mortgage and are thoroughly enjoying the comforts of having no monthly mortgage payments. Darius Jones NMLS-1541754 In Darius 15 years of experience in the financial services industry he has seen the changing landscape of financial products and vast fluctuations in the markets. This uncertainty in the market has made it increasingly apparent there is a serious need for senior Americans to plan for the uncertainty of their retirement years. Recognizing the options that the reverse mortgage can offer, Darius, sees an opportunity to serve families and focus on helping homeowners, 62 and older, understand and utilize the tools available to them. Loans made or arranged pursuant to a California Finance Lenders Law license. Credit on approval. Terms subject to change without notice. Not a commitment to lend. Contents not provided by, or approved by FHA, HUD or any other government agency. At the conclusion of a reverse mortgage, the borrower must repay the loan and may have to sell the home or repay the loan from other proceeds; charges will be assessed with the loan, including an origination fee, closing costs, mortgage insurance premiums and servicing fees; the loan balance grows over time and interest is charged on the outstanding balance; the borrower remains responsible for property taxes, hazard insurance and home maintenance, and failure to pay these amounts may result in the loss of the home; interest on a reverse mortgage is not tax deductible until the borrower makes partial or full re-payment. *2017 National Association of REALTORS Home Buyer and Seller Generational Trends Page 9
Conclusion Older Americans are buying homes. In fact, 25% of all home buyers are age 60 or older, according the National Association of Realtors. Most of them (68% of those age 62 to 70 and 58% of those age 71+) finance the purchase of their home. Less than one percent of home buyers age 62+ are using the HECM for Purchase option, even though it may be a more suitable option. Because the awareness of the HECM for Purchase is still relatively low key among home-buyers and real estate agents, there s a great opportunity to gain advantage by learning how to educate your clients about this financial option. When a buyer uses HECM for Purchase, they have more available funds to afford the home they really want in the location they desire, and they re able to maintain greater financial control. This can bring new opportunity for you to sell more homes to an expanding market of homebuyers. At the conclusion of a reverse mortgage, the borrower must repay the loan and may have to sell the home or repay the loan from other proceeds. Charges will be assessed with the loan including an origination fee, closing costs, mortgage insurance premiums and servicing loan fees. The loan balance grows over time and interest is charged on the outstanding balance. The borrower remains responsible for property taxes, hazard insurance and home maintenance, and failure to pay these amounts may result in the loss of the home. Interest on a reverse mortgage is not tax-deductible until the borrower makes partial or full repayment. Older Americans are buying homes. In fact, 25% of all home buyers are age 60 or older, according the National Association of Realtors. Page 10
A GUIDE FOR REALTORS Using a Reverse Mortgage to Purchase a Home Contact Information Oregon Corporate Office 4949 Meadows Rd, Ste. 150 Lake Oswego, OR 97035 Ph: 503-427-1667 Fax: 503-496-0414 www.reversenorthwest.com Additional locations to serve you: Washington Office: 253-237-1996 Idaho Office: 208-635-0806 California Office: 650-457-1717 Colorado Office: 720-399-9050 Arizona Office: 480-795-7771 This material has not been reviewed, approved or issued by HUD, FHA or any government agency. RMNW is not affiliated with or acting on behalf of or at the direction of HUD /FHA or any other government agency. Reverse Mortgage Northwest is a division of Pacific Residential Mortgage, LLC. NMLS-1477. Equal Housing Lender, NMLSConsumerAccess.org.