Forward on Reverse: Buy a Home in ReverseAtare E. Agbamu, CRMSreverse mortgage, retirement home
In the following article, names have been changed to protect
anonymity.
Linda Larson wants to be closer to her daughter and
grandchildren, who live in Arizona. At age 77, she is in good
health, except for recurring bouts of arthritis, which, her doctor
says, could be better managed in a warmer climate. Her retirement
income and savings are strong, thanks to the careful planning of
her late husband. Although she loves the suburban, Twin Cities-area
house and neighborhood that she has lived in for more than 50
years, she longs to be near her only remaining family in warmer
Scottsdale, Ariz.
With the exception of a few home equity liens, her home is nearly
paid for, and Linda, like many people her age, certainly does not
want to worry about any new mortgage payments. However, she wants
to buy her own place in Arizona, so to not burden her daughter or
her family. Before now, in order to buy a condominium unit in
Arizona and still avoid mortgage payments, she would have had to
pay for the property outright, either by depleting her personal
savings accounts or by utilizing the proceeds from the sale of her
home in Minnesota.
Let's say the custom-built, senior citizen-friendly Arizona
condominium costs $120,000, and the net cash from her home sale in
Minnesota came to $90,000. In order to eliminate any future
mortgage payments, she could draw the $30,000 difference from her
savings (a rather undesirable option), or find some product suited
for her particular situation.
Fortunately, Fannie Mae, the nation's primary investor in reverse
mortgages, has designed a reverse mortgage product geared
specifically towards this type of home buying. Developed in 1996,
the Home Keeper for Home Purchase program, which is available in
all 50 states, is Fannie Mae's proprietary reverse product. For
elderly citizens faced with similar circumstances as Ms. Larson's,
Home Keeper for Home Purchase is the only game in the reverse world
able to be played. Simply put, Linda can now determine the most
desirable combination of personal and reverse mortgage funds (which
are dependent on age, marital status and adjusted property value),
best-suited for her needs and credit.
So, that being said, how does it work, and how can your
borrower benefit?
Using Home Keeper, Ms. Larson could buy the new Arizona condo for
$120,000 in cash by accessing $62,400 in a new Home Keeper loan and
$57,600 of the $90,000 in net cash from the old Minnesota home.
Therefore, she gets to add the remaining $32,400 to her savings,
rather than removing a similar amount, and frees herself from the
burden of monthly mortgage payments. After receiving reverse
mortgage education, evidenced with a certificate from a Fannie
Mae-approved counselor, Ms. Larson can complete the loan
origination process with a lender, the Home Keeper funds are
finalized, and she receives a deed to her new home. At closing, the
Home Keeper purchase funds are either distributed as a lump sum or
line-of-credit, with leftover funds being paid to Ms. Larson on a
monthly basis, for as long as she keeps the property as her primary
residence.
Eligible properties for this innovative mortgage include one-unit,
single-family properties, condominiums, and units within a
planned-unit development that conform to Fannie Mae's standards.
Unfortunately, multiple-unit properties and cooperatives (co-ops)
are ineligible.
The costs are similar to other non-purchase reverse mortgage
products. The origination fee is two percent of the adjusted
property value, or $2,000, whichever is greater. Also, a
one-percent fee goes to Fannie Mae at closing, and a monthly
servicing fee, often between $15 and $30 dollars, will be applied,
along with all standard, third-party closing fees. Borrowers who
are at least 62-years-old can enjoy the benefits of this ingenious
financial device, which include the elimination of payments; the
ability for elders to move to newer, more-manageable homes in
warmer, healthier climates; and the opportunity elders to retain
some extra cash, without dipping into their savings. It is clear
from this overview of Home Keeper for Purchase, that a reverse
mortgage is a very flexible liquidity tool that our ever-growing
elder population can use to add vitality and richness to their
golden years.
Atare E. Agbamu, CRMS, is a senior mortgage consultant and
director of training at Inver Grove Heights, Minn.-based Peoples
Choice Mortgage. Headquartered in Erlanger, Ky., Peoples Choice
mortgage is a member of the National Reverse Mortgage Lenders
Association. Mr. Agbamu has served on the Minnesota Association of
Mortgage Brokers Inc. 2000-2001 Executive Council and currently
serves on the Board of Little BrothersFriends of the Elderly in the
Twin Cities. He can be reached by phone at (651) 389-1105 or e-mail
[email protected].
