During this time of low inventory housing markets, some agents are tapping an overlooked pool of potential sellers — retirees.
Seniors are a rapidly growing demographic, and they are the backbone of today’s housing market. Most are homeowners and some are taking advantage of a little known reverse mortgage product called the Home Equity Conversion Mortgage for Purchase (HECM).
With a HECM, senior citizens who own their home — even if it still has an outstanding mortgage balance — can sell their house, then use the proceeds to purchase something that suits their current life stage and never make a mortgage payment.
How? The HECM puts the reverse mortgage on the newly purchased property, not the family home. In the best-case-scenario, a senior can keep their family home and take out a HECM to purchase a waterfront condo, as long as the condo is used as their primary residence.
With a HECM, title is held in the senior’s name. All the senior has to do is pay the taxes, insurance, and association fees, if any. Of course, the senior is also expected to keep the HECM property maintained in good condition.
Seniors who take advantage of a reverse mortgage to purchase can enjoy many benefits:
- No monthly mortgage payments
- Greater purchasing power
- Tax-free monthly income
- Lower cost of living during retirement
- Defer Social Security benefits
- Ability to rightsize to a lower-maintenance home
- Maintain title to the home without making payments
- Rest assured knowing the reserve mortgage is FHA-insured
- There are no restrictions on how HECM funds can be used
- Pay off debts, make home improvements, or use fund as a line of credit
Sounds too good to be true, right?
Dan Mudd, vice president of lending at Guaranteed Rate, and a reverse mortgage specialist, says many retirees use this product as a financial vehicle, not out of desperation.
“Financial planners are calling me. They’re instructing their clients to not tie up all of their cash,” Mudd said.
For the savvy retiree, a reverse mortgage to purchase can change their quality of life.
Here’s how it works:
Americans are living longer and for most people, their home is their largest asset. But why own a house and be equity rich and cash poor. Many seniors are. Help seniors, age 62 and older, tap the equity in their home. It’s not enough to just age in place, many seniors can use their equity to move closer to family members, move into a smaller, safer condo or simply offset the high cost of living.
For real estate agents, this is an opportunity to complete two deals with one client. Sell the family home, then help the senior buy a small, easy-to-maintain condo, or better yet, a two-to-four-unit building for added income.