Reverse Mortgage Rules Change to Allow Senior
Citizens to Buy a New Home
Purchase Reverse Mortgage Program allows seniors to
purchase a new home, never make a mortgage payment for as long as they
live in the home, may require sizable down payment
By
Cliff Auerswald, All Reverse Mortgage Company
Nov. 14, 2008 - Starting January 1, 2009, FHA will
begin to insure reverse mortgage loans for purchases. What does this
mean? Senior borrowers age 62 and over can now purchase a home using a
reverse mortgage rather than a traditional forward mortgage. This is
great news to seniors who have had a desire to purchase a new home but
felt they could not either due to their credit, their income, they did
not want to have to start making payments again at this stage in their
lives or a myriad of other reasons.
We have heard many senior borrowers who loved their
homes and never wanted to leave it. We have heard from almost as many
who told us that they found their existing home just did not suit their
needs any longer, but they could not see any way of moving to a new
home.
So, they felt that they either had to remain in the
home with which they no longer felt comfortable or their only other
option was to sell it and rent an apartment somewhere and that option
just was not very appealing to them.
The purchase reverse mortgage program allows
borrowers to purchase a new home, they do not have to pay for the entire
home with cash and they never have to make a mortgage payment for as
long as they live in the property.
There is no income or credit qualification (other
than HUD’s requirement that the borrower’s must be able to maintain
their home and pay the taxes and insurance and cannot be delinquent on
federal obligations or currently in bankruptcy) and the Home Equity
Conversion Mortgage (HECM or “HECK-um”) for purchase can be used with
all the same property types that the refinance HECM programs currently
accommodate.
One thing that HUD did for seniors that will really
help them in this market is that they are determining the down payment
requirements solely on the appraised value, rather than the normal FHA
method of the appraised value or the sales price, whichever is less.
This may not sound like much of a concession at first, but stop and
think about a property which must be sold quickly in this market which
still appraises for a higher value.
HUD is willing to allow the senior buyer to gain
the benefit of the higher appraised value which may significantly, or in
some cases even eliminate, the down payment requirement. This leaves
more of the senior’s funds available to the senior as disposable
assets. What follows below are some HECM purchase examples illustrating
this point:
● 67 Year Old Buyer – 5% Expected Average Interest Rate
Home
Purchase
Example #1
Example #2
Appraised
Value
300,000
300,000
Sales
Price
300,000
280,000
Principle
Limit
199,500
199,500
Minus
Insurances & Fees
15,500
15,500
Available
Proceeds
184,000
184,000
Required Down Payment
116,000
96,000
(example taken from
HUD Mortgagee Letter 2008-33) Notice the borrower has to come in
with less money when the value of the property is higher than the sales
price (example #2). Now let’s give two more examples and show what
happens when the borrower is a little bit older and they get even a
little better deal on the home:
● 79 Year Old Borrower Today’s Expected Rate of 5.57%
Example
#3
Appraised
Value
325,000
Sales
Price
275,000
Principle
Limit
242,642
Minus
Insurances & Fees
15,500
Required Down Payment
116,000
● 85 Year Old Borrower Today’s Expected Rate of 5.57%
Example
#4
Appraised
Value
325,000
Sales
Price
265,000
Principle
Limit
260,924
Minus
Insurances & Fees
15,500
Required Down Payment
19,576
As you can see by the last
two examples, the older the borrower and the better deal the borrower
can get when purchasing the home, the less out of pocket the borrower
needs to close the transaction. We have actually seen examples where
the appraised value was significantly higher than the sales price due to
distressed sales and borrowers had a zero down payment requirement.
This allows borrowers who do not currently own an
opportunity to purchase. It also gives current owners the chance to
downsize, move into communities closer to friends, family and activities
more in line with their needs or desires while keeping more of their
proceeds from the sale of their existing home available for their use.
This is much more advantageous instead of having to buy their next home
for all cash to avoid loan payments or qualification for a new mortgage
with income they may not have. Remember, borrowers who purchase with a
reverse mortgage never have to make a monthly mortgage payment for as
long as they live in their home!
What are acceptable down payment sources for the
Reverse Mortgage Purchase Program?
● Proceeds from sale of current home
● Retirement Funds including 401k, Stocks, Bonds,
etc
● Other Savings
Now is the time for seniors who are serious about
making a move to begin looking in earnest as they have a tool that has
never been available to them before. The Purchase Reverse Mortgage
effective date is January 1, 2009 for FHA to begin to insure the loans
but there is no reason seniors cannot begin to look now!
About All Reverse Mortgage Company
Information provided by company
ARMC is a HUD approved Lender helping senior
homeowners turn dormant equity into spendable tax-free cash. The
company’s founder has been in mortgage banking for over 32 years and
this dedicated team of mortgage professionals have written their own
reverse mortgage product and sold reverse mortgage loans to investors on
Wall Street. We are passionate about seniors’ rights to age in place
and dignity and about the reverse mortgage product’s ability to allow
them to do so.
We specialize in Reverse Mortgages for both
Purchase & Refinances. A reverse mortgage enables senior homeowners to
sustain their retirement while living in the home and community they
love. Contact us for reverse mortgage purchase information and our no
obligation reverse mortgage informational package. Call (888) 801-2762
Ext 1 or complete the
online questionnaire .
Nov. 14, 2008 - Starting January 1, 2009, FHA will
begin to insure reverse mortgage loans for purchases. What does this
mean? Senior borrowers age 62 and over can now purchase a home using a
reverse mortgage rather than a traditional forward mortgage. This is
great news to seniors who have had a desire to purchase a new home but
felt they could not either due to their credit, their income, they did
not want to have to start making payments again at this stage in their
lives or a myriad of other reasons. 
ARMC is a HUD approved Lender helping senior
homeowners turn dormant equity into spendable tax-free cash. The
company’s founder has been in mortgage banking for over 32 years and
this dedicated team of mortgage professionals have written their own
reverse mortgage product and sold reverse mortgage loans to investors on
Wall Street. We are passionate about seniors’ rights to age in place
and dignity and about the reverse mortgage product’s ability to allow
them to do so.