Reverse mortgages sound too good to be true — even more so if you use a reverse to sweeten the deal when you buy that retirement ranch you’ve been looking at. “They’re amazing,” says Realtor Carl Lyday with Metro Brokers Front Range Properties, who studied the concept in detail, and is now closing on a reverse to re-fi his home in Stonegate. “They’re not what most people think.”
“Once you understand what a reverse mortgage is, you realize how well suited they are for somebody purchasing a new home to retire in,” says Larry Armstrong with Reverse Mortgage Funding, who has reoriented his entire business concept around reverses – particularly what are called HECM/H4P loans, home equity conversion mortgages for purchase.
“When you use an H4P to purchase a new home, you’re doubling your buying power,” says Armstrong. Reverses, he adds, are real mortgages — they’re not a device that gives up ownership of your home. Here in the U.S., reverses are FHA-backed, regulated under HUD guidelines. “You can find reverse mortgages in most countries, but the fact that the government backs them here is a huge advantage to borrowers,” he adds.
Using an H4P/HECM has the same basic advantage for buying a new home as it does for a couple re-financing: The borrower has the option of making no mortgage payment, neither principal nor interest, for as long as either of you live in the house. As a reverse, mortgage interest is deferred over time while you live in the home, and someday it has to be repaid, either when you sell, or by your heirs. But neither you nor your kids will ever have to bring cash to the table, in the event that the house is worth less than the loan balance. The non-recourse FHA-backed insurance guarantees that.
The reason lenders are willing to make that kind of a deal is that they’re figuring that over time, your home will appreciate at around 4 percent per year, no matter how long you live there. H4Ps also require bigger down payments than typical loans – 52 down if you’re the youngest allowable age of 62, to 29 percent down if your, say, 78.
Those features all make them ideal for buyers that want out of older homes with stairs to climb, in favor of a ranch – either in an existing neighborhood, or in one of the new communities oriented around age-55-plus living, says Armstrong. “If you’ve been shopping ranches, you know how nice some of those are, but also how expensive they’re becoming,” he adds. “Using an H4P allows you to use the proceeds of your sale or your other assets to double your buying power, or better.”
“With the option of no mortgage payment,” adds Armstrong, “you greatly reduce your living costs and boost retirement cash. And reverses have no effect on most other sources of income you’ll keep receiving, including Social Security and Medicare.”
The Lydays, who are using Armstrong to arrange their reverse, look at the reverse for estate planning: “It’s a nest egg,” says Carl Lyday. A reverse allows you to pull as much as 60 percent of your current equity in the home and apply it to anything you want. “We’ll take out 50 percent and put it into a line of credit at 4-½ percent,” he says. Lydays, who has done an additional training in HECMs, is orienting part of his Realtor practice to help buyers use H4Ps.
Are there cautionary notes? Sure, says Armstrong. Reverses are best suited for somebody who loves their home and wants to stay. Before you can qualify, you’re required to meet with a HUD approved counselor, in part to reaffirm that you can make regular property tax, insurance and HOA dues payments – still required – as well as keep up your home’s condition. Even if one spouse is under 62, either can stay in the home with no mortgage payment even if the other dies.
The purchase limit allowed by HUD ($625,500) will put most borrowers within range of some of the nicest ranch communities in the area, including Anthem Ranch, The Meadows, Inspiration and Stapleton, says Armstrong. Larry Armstrong and Ron Meier at Reverse Mortgage Funding can answer other questions – or take your RSVP for a free seminar, at 303-773-3077, or visit HECMCO.com.
If you go…
Where: HECM for Purchase loan by Reverse Mortgage Funding, LLC. FHA-backed loans for borrowers age-62-plus that can be used for a new home purchase; down payment 29% to 52% depending on age; fixed or variable rates; borrower makes no mortgage payment while occupying the home; must pay property tax, insurance, HOA, upkeep; neither borrowers nor heirs are liable for any negative balance at end of loan. Larry Armstrong NMLS 387204 Ron Meier 1371657
When: By appointment or call for free seminar
PHONE: 303-773-3077
Web:
