Real estate financing options for older adult homeowners
Our senior population has been hit hard by our current economic downturn. They have taken the double whammy of depreciation in their real estate values and a slashing of their retirement funds. As a result, many seniors have had to alter their retirement plans. Fortunately, reverse mortgage options for senior homeowners have expanded and can provide the financial means to allow the homeowner to maximize their home equity and maintain the quality of life they deserve.
A reverse mortgage is a mortgage loan in which the borrower can access a stream of income from the equity in their home. The money they borrow plus the interest that accrues are a lien that needs to be satisfied upon death of the longest living borrower or upon permanently moving out of the home or sale of the property. The amount of money available to the senior is based on their age and the value of their home and there are no monthly mortgage payments for as long as the borrower lives in the home.
The mix of reverse mortgage products available through FHA’s Home Equity Conversion Mortgage Program (HECM) now includes three options for senior homeowners: HECM Standard, HECM Saver, and HECM for Purchase.
The HECM Standard 2011 is available for seniors who want to maximize access to their equity and are comfortable with the 2 percent up front mortgage insurance program, which is based on the home’s value up to the lending limit of $625,500. This program allows for the largest cash-out option.
The newly introduced HECM Saver offers borrowers the choice to receive a smaller benefit and pay only .01 percent of the home’s value up to the lending limit. This can save homeowners anywhere from $5,000 to $12,000 in closing costs and make reverse mortgages accessible to a broader range of homeowners.
The HECM for Purchase program allows senior homeowners to purchase a home with no credit or income qualification, as with traditional purchase loans, and the senior can live in the home with no monthly mortgage payments. As with all reverse mortgages, the loans are repaid when the senior leaves the home as their primary residence.
Consumers pursue these loans for a variety of reasons. Some do it to finance an active lifestyle in retirement, others because a home needs major repairs or renovations to make it more senior friendly. Others want to maximize their cash flow by eliminating traditional mortgage payments or earn their yearly property tax through the benefit of a reverse mortgage credit line. The flexibility to use your equity to best suit your individual needs makes reverse mortgages a viable financial solution for older adults.
If you are interested in learning more about the benefits and guidelines concerning reverse mortgage, as well as other equity release options available for older adults, please call.
Laura Levy is a Mortgage Planner and Reverse Mortgage Specialist with Bay Area Reverse Mortgage, a division of Holmgren and Associates. She can be reached at (510) 521-6464.