Author Archives: Dan Hultquist

The HECM for Purchase: Another Reason to Love Reverse Mortgages

“HECM for Purchase began with the passage of the Housing and Economic Recovery Act of 2008. Prior to this legislation, if a homeowner in retirement wanted to relocate, qualifying for the new home often proved difficult. They would have to be eligible to purchase a home though traditional means, establish their residency in the home, and then refinance with a HECM if desired.”

– Understanding Reverse

The ability to use a Reverse Mortgage to purchase a home is no longer “new”, yet the public is still in the dark. Clearly, the Home Equity Conversion Mortgage (HECM) is more versatile than anyone realizes. In fact, when I speak to seniors, financial planners, and even Realtors, the concept of purchasing a home with one is completely foreign. While I can’t cover all of the details in a blog, let’s cover some basics.

The Need

Older homeowners often find themselves wanting to, or needing to, relocate to be closer to family, downsize to a more manageable home, or even upsize to a retirement dream home on the beach, golf course, or active adult community.

A call I received this week is a common one; “My grandmother wants to move to the south to be closer to the kids and grandkids.” Having lived half my life in the north, I understand that moving to the south is attractive enough on its own. Yet, when physical limitations become a reality, or when individuals desire a closer connection to family, sometimes a move is needed.

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The Contribution

In a HECM for Purchase, the lender will still be able to provide the same principal limit to the borrower as is customarily available with a Reverse Mortgage. Instead of giving the funds to the borrower, however, the funds are generally applied to the sales price of the new home. Depending on the age of the youngest participant, and the effective interest rate, a lender may be able to contribute principal limits of 30% to 75% of the home value toward the purchase of that home.

When selling a home and relocating, homeowners may find that this program allows them to have cash reserves upon relocating. Many will even use the remaining funds to supplement their retirement savings.

The Details

HECMs are specifically designed to be offered only for a borrower’s “Principal Residence.” This means that HUD will require the borrower to occupy the home within 60 days. Also, be aware that many mistakes can be made when the Realtor writes the sales contract. So make sure the Realtor understands HUD’s guidelines related to new construction and seller-paid closing costs for Reverse Mortgages.

Order my book today to learn more about how the Reverse Mortgage for Purchase allows older Americans to have more freedom with their housing. Understanding Reverse is the most comprehensive guide for answering your most common questions about Home Equity Conversions.

The Non-Recourse Feature: Another Reason to Love Reverse Mortgages

The proper definition of the non-recourse feature is “FHA guarantees that the borrower will not owe more than the home is worth at the time it is sold.” This should be comforting to every homeowner and their heirs. They can be assured that if a homeowner lives a very long time, or if property values drop, FHA will pay a claim to the lender so that nobody is harmed by the loan being “upside down” or “under water”.                     

– Understanding Reverse

This is a primary consumer protection that makes HECMs so attractive. What’s not to love about this provision? It is a tremendous advantage for older homeowners that removes much of the risk associated with homeownership. Because many are skeptical about this claim, I often get asked to prove the non-recourse feature really exists. So the book, Understanding Reverse, documents the federal regulations and relevant handbooks that give us guidance.

Can a Reverse Mortgage really guarantee this?

Yes. The homeowner is not responsible for the portion of a loan balance that accrues beyond the home’s value. Another common explanation is:

“THE HOME STANDS FOR THE DEBT”… NOT the homeowner

Unfortunately, many understand this phrase to mean that the bank takes the home. No. The homeowner retains title to the home through the life of the loan and can sell it at any time with no prepayment penalty. The non-recourse feature is simply there to protect the homeowner and the lender from “crossover” loss, that point where the sale of the home is not sufficient to pay off the loan balance. At the time the homeowner wishes to sell, they cannot be held responsible for the portion of the loan that exceeds the home’s value.

AA014705So, who pays for this?

Before you say this is too good to be true, this is why FHA collects mortgage insurance premiums. FHA’s Mutual Mortgage Insurance Fund (MMIF) is a collection of funds created specifically for this purpose. But who pays for it? The large pool of HECM borrowers pay for it indirectly through the insurance premiums that accrue on their balances.

The non-recourse feature may also allow the heirs to obtain the home for less than market value. After the last borrower has died, the non-recourse feature allows the heirs to obtain the property for either 95% of the home’s value or the loan balance, whichever is LOWER. Again, there is no recourse to the estate for this.

Order my book today to learn more about how FHA protects consumers and ensures that the heirs are not stuck with a bill. Understanding Reverse is the most comprehensive guide for answering your most common questions about Home Equity Conversions.

Finally! A book to simplify the New Reverse Mortgage

On a recent flight, the passenger next to me asked, “What do you do?” I have begun to enjoy seeing the reactions when I reply, “I educate others on the proper use of reverse mortgages.” Predictably, she replied, “I sure hope I never need one of those.” THAT reaction is precisely why I wrote UNDERSTANDING REVERSE.

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I have spent several years studying, selling, and teaching the Home Equity Conversion Mortgage (HECM), the popular federally-insured reverse mortgage product. The conclusion I, and other industry professionals, have come to is this:

When I turn 62, I WANT a HECM.

The federal government has established guidelines that, while complex, make this a financial tool every homeowner age 62 and older should consider, whether they need it or not. As evidence, consider that executives in my industry are getting HECMs for themselves and their family members. Unfortunately, our understanding of the product is different than that of the average homeowner. It appears we need a better understanding of reverse mortgages.

In response, I have written a book, titled Understanding Reverse that addresses the 30 most common questions I get. The goal was not only to simplify the new reverse mortgage, but also to create a reference guide for answering those questions in the most compliant way. The book begins by answering the basics – what is a reverse mortgage? Every chapter that follows builds on previous chapters until the reader has a more comprehensive understanding from which to make financial decisions.

This web page, on the other hand, will include ongoing blog discussions about reverse mortgage concepts. This should also contribute to a better understanding of the product.

In addition to being an author and educator, I am a licensed mortgage originator and the only Certified Reverse Mortgage Professional (CRMP) residing in Georgia. Therefore, if you or any other interested party lives within the state, I would love to meet you face-to-face for a FREE one-on-one consultation.

If you know someone curious about reverse mortgages, share this link. From here they can purchase the book and stay current with ongoing discussions through this blog.

For the other mortgage professionals that follow my writing, I would love to see your comments about how you plan to use a reverse mortgage during retirement.

As I begin to post more blogs on this site, you will find that I am passionate about educating the public and correcting misconceptions. In fact, the skeptical passenger has since reached out to me for more information and is exploring her options. Whether she decides this is an option for her or not, that is one additional homeowner that now has a better understanding.

Dan Hultquist