HECM for Purchase Downsizing Tool for Professionals

Reverse Sales Training

HECM for Purchase for RealtorsRevised January, 2016

NMLS# 935554

www.jeffersonreversemortgage.com 703-319-2198

Introduction to RealtorsKnowledge separates you from your competition.

Options for your buyers:

• Provide an alternative to the traditional Cash-Only downsizing option.• Help your clients buy the home they want with more financial flexibility.• Help your clients diversify by not having to have all or the majority of their funds in

the home.• No monthly mortgage payments for more peace of mind and security in retirement.

HECM = Home Equity Conversion Mortgage-FHA-Government Insured.

www.jeffersonreversemortgage.comwww.jeffersonreversemortgage.com 703-319-2198

• HECM Features and Benefits• Market Opportunity• How the Program Works• Downsizing• Downsizing with liquidity• Upsizing• Upsizing with liquidity• Advantages• How You Can Benefit• Property Eligibility• Borrower Eligibility/Obligations• The Process• Repayment


The HECM

• The Home Equity Conversion Mortgage (HECM) iscommonly known as a “reverse mortgage.” It is a loanoption that allows homeowners who are 62 and olderto convert some of their home equity into tax-freecash.

• Homeowners continue to live in and OWN their homes.• There are no monthly mortgage payments.• Note: The loan must be repaid if the borrower does not

meet loan obligations, including taxes and insurance, aswell as property upkeep and maintenance.

• Most HECMs are government-insured.

IMPORTANT: This is NOT tax advice. Consult a tax professional.


Market OpportunityHECM reverse mortgages can now be used to BUY a home. This can make the purchase of a home easier and more affordable for your clients who are age 62 or older. And, it can help you tap into a currently under-served market.

Current Home New House


Market Opportunity, cont.

10,000 people turn 65 every day!

In 2011 nearly 500,000 households of homeowners in the age 62-plus bracket moved to different homes. This number will continue to rise, now that the Baby Boomer generation has begun to enter retirement.

This presents a new and growing market of potential clients who can benefit by selling their current homes and moving into new ones.


Market Opportunity, cont.

HECM purchases can help age 62+ clients who wish to:

• Move closer to family.• Reduce square footage.• Enjoy the comfort of a single-story home.• Switch from a house to a condominium.• Live in a neighborhood that is more social,

or which provides easier access toshopping, medical care or other amenities.

• Upgrade to a more expensive home.


How the Program Works

Instead of paying all cash or taking out a traditional mortgage, buyers use a HECM to finance part of the purchase price. This significantly reduces the amount of out-of-pocket funds buyers must bring to the table.

• Buyers can save and invest more of their proceeds from the sale of their currenthomes.

• At closing they only bring the difference between the reverse mortgageproceeds and the sale price.

• There are no monthly mortgage payments, and the loan does not need to berepaid unless:

• The borrower sells the home.• The home is no longer the primary residence of at least one of the borrowers.• The borrower does not meet loan obligations, such as taxes, insurance or

property maintenance.


Downsizing

A 70-year-old couple sell their home for $500,000 and purchase a new home for $350,000 and do not want any monthly mortgage payments.

Without a HECM for Purchase

Sale price (old home) $500,000

Minus 8% closing costs $40,000

Net Proceeds $460,000

New Home Price $350,000

Funds remaining $110,000


Downsizing with LiquidityA 70 year old couple sell their home for $500,000 and purchase a new home for $350,000 and do not want any monthly mortgage payments.

With a HECM for Purchase

Sale price (old home) $500,000.00Minus 8% closing costs $ 40,000.00Net Proceeds $460,000.00New Home Price $350,000.00HECM for purchase $167,936.95Down payment from proceeds $167,936.95

Funds remaining $292,063.05


Upsizing

A 70 year old couple sell their home for $500,000 and purchase a new home for $700,000 and do not want any monthly mortgage payments.

Without a HECM for Purchase

Sale price (old home) $500,000

Minus 8% closing costs $ 40,000

Net Proceeds $460,000

New Home Price $700,000

Funds required $240,000


Upsizing with Liquidity

A 70 year old couple sell their home for $500,000 and purchase a new home for $700,000 and do not want any monthly mortgage payments.

With a HECM for Purchase

Sale price (old home) $500,000.00Minus 8% closing costs $ 40,000.00Net Proceeds $460,000.00New Home Price $700,000.00HECM for purchase $368,939.95Down payment from proceeds $368,939.95

Funds remaining $ 91,060.05


Program Advantages

The advantages of a HECM for purchase loan include:

• Buyers spend less money out-of-pocket, and can more comfortablyafford an upgrade.

• They have the option to include a HECM line of credit as part of theloan, which borrowers can tap into as needed.

• Borrowers can preserve assets to help fund a long retirement.• No FICO score is required, though the borrower must have

satisfactory credit and property charge payment history.• There are no employment requirements, though borrowers must

meet or exceed the required residual income.• Borrowers pay NO monthly mortgage payments for as long as they

live in the home.


How You Can Benefit

A HECM for purchase can give you:

• The potential for more listings and more sales.• Access to the growing Baby Boomer market.• The ability to help your customers purchase homes

that better suit their needs and wants.


Property EligibilityEligible Property TypesProperties that are eligible for a HECM for purchase loan include:

• Existing single family residences more than one year old.• Exiting single family residences less than one year old, where the Certificate of Occupancy or its equivalent has

been issued BEFORE taking the application and ordering services, etc.NOTE: If a warranty is issued in lieu of the Certificate of Occupancy, it must be issued prior to the application and case number assignment by an approved warranty company.

• Manufactured homesNOTE: These must be build after June 15, 1976, have never been moved, and meet all FHA and FAR requirements.

• Modular Homes• FHA-Approved condominiums• Site condominiums• 2-4 Unit properties

Ineligible PropertiesProperties that are ineligible for a HECM for purchase loan include:

• Cooperative Units (“Co-ops”)• Bed and Breakfast properties• Boarding houses• Manufactured housing that does not meet FHA and FAR requirements• Non-FHA-Approved condominium units• Existing single family residences that are less than one year old, or new construction properties where the

Certificate of Occupancy or its equivalent was not issued prior to the application and case number.


Borrower Eligibility

9All borrowers must be age 62 or older.9Eligible non-borrowing spouses receive protection from

losing the home should the borrower predecease them.9Mandatory HUD counseling is required.9The home must be the primary residence and the owner

must occupy it within 60 days of closing.9Borrowers own the property and as such are responsible

for paying all property charges.9Borrowers must bring the difference between the

purchase price of the home and the HECM proceeds to the closing table.


The Process

After borrowers decide to purchase a more desirable home, a real estate agent can sell their existing home, determine the purchase price range, and identify properties of interest.


The Process, cont.

Counseling

• Clients must participate in an informationsession with an independent, HUD‐approvedcounselor, in person or by phone, BEFOREcompleting an application.

Application

• The client applies for the HECM,and provides the signed anddated counseling certificate.

Financial Assessment

Processing• Property appraisal, processing and approval are

similar to a traditional mortgage.

Closing • Closing is typically 30 to 45 daysafter application.

Effective, April 27, 2015, all prospective borrowers must undergo a financial assessment to ensure they can meet their loan obligations.


Repayment

• Usually the last surviving borrower or the estate sells the home to repaythe loan.

• The loan can also be repaid in cash from any source, such as otherassets, proceeds from a life insurance policy, or a loan refinance.

• No debt is passed along to heirs. There is no personal liability.

• Once the loan is repaid, any remaining equity belongs to thehomeowners or their heirs.


It’s About Lifestyle

Today’s buyers want the whole package

9Work and volunteering9 Family and friends9 Appropriate maintenance-free housing9 Green, energy-efficient property

Remember that buyers buy emotionally and justify logically. Most will not move unless they’re shown how.


Thank You.To learn more please contact:

This material is not from HUD or FHA and has not been approved by HUD or any government agency.

Jefferson Mortgage Group LLC is licensed in Virginia, Maryland, DC & Pennslvania.Virginia State Corporation Commission License Number MC-5659 and the Pennsylvania Department of Banking & Securities #46259The DC Department of Insurance, Securities, and Banking License #MLB935554Maryland DLLR License #21586

An Equal Housing Lender

By refinancing the consumer's existing loan, the consumer's total finance charges may be higher over the life of the loan.

T

George Omilan, PresidentNMLS #873983703 319 [email protected]

This brochure is for professional distribution only and not for distribution to the general public.

NMLS# 935554


HECM for Purchase Downsizing Tool for Professionals

Real Estate

Transcript of HECM for Purchase Downsizing Tool for Professionals