What Are the Costs of Aging in Place?

According to an AARP study, 90 percent of people age 65 and over would prefer to stay in their own homes as they get older — and not go to a nursing home or assisted living facility.

But if you or your parents are buying, building or renovating a home to accommodate the needs of a loved one, what kind of costs can you expect to incur?

Source: What Are the Costs of Aging in Place?

Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | August 17, 2018

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct for your situation. This information is not legal advice and is for guidance only. You may reproduce this information in whole and not in part, providing you give full attribution to James Spray.

The PURCHASE Reverse Mortgage (H4P)

What Is A Purchase Reverse Mortgage?

By way of background, a previous blog on reverse mortgages discusses the general facts regarding reverse mortgages. Let’s talk specifically about the purchase reverse mortgage, which is otherwise known as the Home Equity Conversion Mortgage (HECM) for purchase [H4P]. This product was created by the Housing and Economic Recovery Act of 2008 (HERA). The product is insured by the Federal Housing Administration (FHA) and guaranteed by the US Department of Housing and Urban Development (HUD). In short, the purchase reverse is a way to purchase a home with only a down payment. In addition to the down payment, the buyer is responsible for paying the homeowners insurance, property taxes and (if applicable) Home Owner Association (HOA) fees. There are no principal or interest payments required. However, one may make principal and interest payments by choice not necessity. Finally, if the loan balance on the reverse mortgage eventually exceeds the home’s value, the lender is insured against that loss.

Who Is It Good For?

BORROWER: Age 62 and older based on the youngest titleholder. A non-borrowing spouse under the age of 62 may be added to the loan providing the spouse is over the age of 18. There is no credit required, nor a credit score requirement and only minimal income requirements. This is a minimum documentation loan.

PROPERTY: Single family homes as well as 2-4-unit residential properties and all FHA approved condos are eligible. Title may be held as fee simple, a living trust, and leasehold or life estate. The property must meet FHA appraisal requirements. If the property does not meet FHA criteria (health and safety issues), a set aside account will be established for up to six months while the health and safety requirements of the FHA appraisal criteria are met. The property may be either an existing home or a new build home, so long as the property meets FHA standards.

Examples by Age and Purchase Price of a Home Equity Conversion Mortgage

Purchase Price Age Down Payment HECM Funds
$300,000 62 $174,688 $138,300
74 $153,088 $159,900
80 $138,388 $174,600
86 $118,888 $194,100
$679,650 62 $427,230 $274,180
74 $381,427 $319,983
80 $349,620 $351,790
86 $307,634 $393,776

January 1, 2018 – Pricing is subject to change at any time.

To illustrate – let’s look at the example of a $300,000.00 purchase at age 74: To purchase the residence, the HECM borrower would need $153,088 to close on the purchase of a $300,000.00 property. The balance of the proceeds is provided with the HECM as a benefit of the HECM program and include closing costs. In all examples of HECM purchase mortgages, no mortgage payments are required. All that must be paid out-of-pocket on an annual basis are real estate taxes, homeowners insurance and HOA fees (if applicable). There are no required payments of principal, interest, or other mortgage costs (including upfront costs) until termination of the HECM.

Who Likes Reverse Mortgages The Best? The Borrowers Who Have One!

95% Partially to fully meets my financial needs

93% Positive effect on my life

89% Would refer a friend

94% Report peace of mind

89% Report a more comfortable lifestyle

87% Report a better quality of life

Source: AARP December 2007. Survey of 1500 HECM Borrowers

Why The H4P Can Be Good

A reverse mortgage for purchase allows older Americans to buy a house that better suits their needs without dumping all their retirement assets into it, which would be the case in an all-cash transaction. It also lets them avoid dipping into their monthly fixed income, which would occur if they took out a traditional mortgage. It provides more purchasing power  and doesn’t drain all of the assets. It allows a buyer the luxury to get a better lot, to add all the upgrades they want and to still have no mortgage payment.

The home is titled in the owner’s home; as with all mortgages, the lender retains a security interest in the title. There are no monthly mortgage payments. Instead, the loan is repaid when the home is sold or the borrower no longer resides in the home. The repayment to the lender includes the amount borrowed, plus accumulated interest. Any remaining equity belongs to the borrower, heirs or estate. The heirs may purchase the property for the balance due or 95% of the value, whichever is less.

TIPS: There are no concessions allowed by sellers, builders or agents; this includes any personal property. As well, the buyer must pay for the title insurance. There can be no repair set-asides; all repairs, where major property deficiencies, such as

  • No running water
  • Leaking roof
  • No primary heating source
  • Inadequate electrical system (including lighting)
  • Inoperable doors and windows (inhibited ingress and egress)
  • State or local code violations

which threaten the health and safety of the homeowner and/or jeopardize the soundness and security of the property, must be completed by the seller prior to closing. (H4P FAQs per HUD).

NOTICE: (1) Rates are subject to change without notice. For specific and current information contact me or your H4P Specialist. (2) The illustrations in the above chart titled: *Examples by Buyers Age and Purchase Price, are representative examples only. The figures are not intended to be anything other than representative illustrations in order to convey the concept of the purchase reverse mortgage.

DISCLOSURE: The information provided herein is not intended to be an indication of loan approval or a commitment to lend. Additional program guidelines may apply. Information is subject to change without notice.

DISCLAIMER: This post does not represent that any of the information provided is approved by HUD or FHA or any US Government Agency.

Financially Speaking™ James Spray, RMLO, CNE, FICO Pro

CO LMO 100008715 | NMLS 257365| First Published 01/11/10 | Updated January 1, 2018

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.

Timeline: Bankruptcy to Mortgage Chart

Experiencing a severe credit event such as foreclosure, short-sale, deed-in-lieu of foreclosure or bankruptcy does not mean you will never be eligible to get a home loan. This chart provides the time-out periods required by event. The assumptions are that you have established acceptable credit scores and meet underwriting guidelines. In certain circumstances, one may qualify for a mortgage upon discharge of a Chapter 7 or during a Chapter 13.

Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | Originally published in 2010 and updated regularly | September 19, 2017 Contact me to obtain a pdf copy of this chart.

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct for your situation. This information is not legal advice and is for guidance only. You may reproduce this information in whole and not in part, providing you give full attribution to James Spray.

National Elder Abuse Resources and Colorado Financial Elder Abuse Mandatory Reporting Law

Elderly folks tend to be more trusting and less informed of the latest scams, making them the perfect target. To learn more about elder abuse, on the national level, two great resources are the National Committee for the Prevention of Elder Abuse and the National Center on Elder Abuse.

In Colorado, there is the Colorado Coalition for Elder Rights and Abuse Prevention.

As well, Colorado has a mandatory reporting law (including financial abuse) for certain categories of professionals and other workers.

Sadly, it is all too common where a family member is committing financial abuse of a parent, grandparent or other senior family member.

While it is encouraged that reporters of elder financial abuse contact local law enforcement, we’ve learned many local law enforcement agencies are unaware of the Colorado financial elder abuse law and are not trained on how to deal with it.

To report elder abuse in Colorado, the first option is to contact the Adult Protective Services (APS) intake office within the county department of human services were the at-risk adult lives. Click anywhere in this sentence for a current list of phone numbers to report elder abuse.

If reporting to the county APS office is not a viable option, contact the District Attorney’s office for the county in which the at-risk adult lives.

Image attribution

Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 |August 26, 2017

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.

Do you prefer a ReLOC or HELOC? – Tools for Retirement Planning

Tom Davidson has written and illustrated another great article which I know you will enjoy reading. Here are the first few paragraphs which lead into the link to his wonderful presentation:

“HELOCs (Home Equity Lines of Credit) are widely used. Simply having one makes many people more comfortable. My wife and I had a standby HELOC for many years – ready to use as a convenience or in an emergency. Luckily that emergency never happened, but we felt well prepared knowing we had ready access to a substantial amount of cash that could be used for anything we needed. When I was a financial advisor, a HELOC was on my checklist to discuss with every client – at least those who were prudent with their money.

ReLOC: A Retirees Line of Credit

Is there a better alternative for homeowners over age 62?  A ReLOC may be a far better choice for many retirees. ReLOC is a nickname that stands for either Retirees Line oCredit or Reverse Mortgage Line of Credit. While ReLOCs share many features with HELOCs, three unique features make a ReLOC a line of credit designed for retirees:

  1. The amount you can access grows every month
  2. You don’t have to make payments until you permanently leave your home
  3. The loan can’t be canceled, reduced, or frozen as long as you keep up with basic mortgage obligations (property tax, homeowner’s insurance, basic maintenance, and Homeowner’s Association dues).

Here’s the borrowing limits for a ReLOC and a HELOC for a 63-year-old in a $400,000 house who lives to age 99:”

Source: Do you prefer a ReLOC or HELOC? – Tools for Retirement Planning

Reverse Mortgages For Every Income Bracket

In the terrific, brief article posted below, wealth manager Tom Davison provides clear understanding of the usefulness for reverse mortgages in every income bracket.

I encourage everyone with any interest whatsoever in wealth management to invest a few minutes and read Davison’s great blog post, reblogged below.

Reverse Mortgages: Many Users, Many Uses

Image attribution: Tools for Retirement Planning

Notice: The information provided is not intended to be an indication of loan approval or a commitment to lend. Additional program guidelines may apply. Information is subject to change without notice.

Disclaimer: This article does not represent that any of the information provided is approved by HUD or FHA or any US Government Agency.

Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | June 21, 2017

The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only.

Realtors: 2 Deals In 1 – The Purchase Reverse Mortgage

Back to Back Closings

Back to Back Closings

Realtors: 2 Deals In 1 – The Purchase Reverse Mortgage

The Home Equity Conversion Mortgage for Purchase (HECM) is known in the industry as the H4P. The H4P is an FHA Insured reverse mortgage which is guaranteed by the Department of Housing and Urban Development.

In writing this post I recall a specific H4P transaction where I was privileged to originate a purchase reverse mortgage for a delightful fellow Colorado native. This transaction closed in July 2013. The purchaser, age 63, sold her townhome in Parker for $115,000.00 and in conjunction with the H4P used the combined proceeds to purchase a townhome in Castle Rock for $227,600.00.

The financial details of that transaction are as follows: The buyer’s cash to close requirement was $96,400.00 plus her earnest money of $2,000.00. This sum of $98,600.00 included pro-rata property taxes, insurance and HOA fees.  The H4P proceeds to close were $129,200.00. In addition, the FHA UFMIP, origination fee and allowed closing costs totaling $11,400.00 were financed. All figures have been rounded to the nearest $50.00.

Purchase Price $227,600.00
Buyer Cash to Close + Earnest Money     98,400.00
H4P Cash at Closing $129,200.00
Financed Closing Costs     11,400.00

She found it most desirable to purchase her new home and not have to make mortgage payments ever again. Of course, she may make periodic payments or payoff the loan at any time but only if she wishes. It bears observing that she made this decision with the blessing of her children, one of whom is a CPA. Going forward, she simply pays the taxes, insurance and HOA dues. She does not need to pay monthly mortgage payments again for so long as she lives in her home.

On qualifying, for all intents and purposes, this was a Stated Income loan. As a matter of responsible underwriting, it was merely confirmed she had sufficient income to pay real estate taxes, insurance and HOA dues.

Due to adjustments* which FHA made to the HECM program in September 2013, an identical transaction as described in this post would presently require cash to close from the buyer of approximately $114,950.00.

On qualifying, for all intents and purposes, this was a Stated Income loan. As a matter of responsible underwriting, it was merely confirmed she had sufficient income to pay real estate taxes, insurance and HOA dues.

Due to adjustments* which FHA made to the HECM program in September 2013, an identical transaction as described in this post would presently require cash to close from the buyer of approximately $114,950.00.

For additional facts on the FHA Reverse Mortgage program (HECM), you may wish to click on this link: Reverse Mortgage Facts. Further discussion and illustration on the H4P is available on this link: What Is A Purchase Reverse Mortgage?

TIPS: There are no concessions allowed by sellers, builders or agents; this includes any personal property (such as appliances). In addition, the buyer must pay for the title insurance. There can be no repair set-asides; all repairs, where major property deficiencies threaten the health and safety of the homeowner and/or jeopardize the soundness and security of the property, must be completed by the seller prior to closing. Another unique feature of this program is to set your closings for about 10:00 AM and not later than 11:00 AM to help make sure the H4P funds the same day as the closing. On the closer, few are experienced with the H4P, most are experienced with the traditional reverse mortgage and think the H4P is the same. It is not. Given the buyer is paying for the title insurance, I suggest we use a closer well-trained in the HP. I have such a closer.

Finally, although a rare circumstance, should a buyer have two FHA Case Numbers open, the non-purchase case number must be cancelled prior to final loan approval. As of this post, FHA will not allow an application to be taken until the Certificate of Occupancy has been issued.

If a non-borrowing spouse is involved in the transaction, the non-borrowing spouse (NBS) may not be a party to the real estate purchase contract. For more information on the NBS you may wish to read: Reverse Mortgages and the Under-Age 62 Spouse.

[*HUD Mortgagee Letter 2013-27]

Update: There are market and borrower favorable changes pending application to the H4P on September 19, 2017. When they go into effect, this posting will be updated to reflect the changes.

Notice: The information provided is not intended to be an indication of loan approval or a commitment to lend. Additional program guidelines may apply. Information is subject to change without notice.

Disclaimer: This article does not represent that any of the information provided is approved by HUD or FHA or any US Government Agency.

Image attribution

 Financially Speaking  James Spray, RMLOCNE, FICO Pro |CO LMO 100008715 / NMLS 257365 |Published: April 3, 2014 ~ Updated: February 6, 2017

 Notice: The information on this blog is opinion and information. While I have made every effort to compose and link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.