Buy a Home in ReverseAtare Agbamureverse mortgage, credit, seniors
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 Brothers--Friends of the Elderly in
the Twin Cities. He can be reached by phone at (651) 389-1105 or
e-mail
[email protected].
