When it comes to buying a home, you’re never too old. (Photo: Pexels).
The Aging at Altitude Expo was held at the Boulder Jewish Community Center on April 23. One of the sessions at the conference explained reverse mortgages as a financial tool for those who are 62 years of age and over. The session featured experts dispelling many of the myths that have deterred seniors from using this valuable tool. One of the panelists who spoke was Gabe Bodner of Fairway Independent Mortgage. Below is a synopsis of the information from his session.
In 1988, FHA reverse mortgage legislation was signed by President Reagan. Though reverse mortgages have been around for some time, they are gaining popularity as baby boomers grow older and have high demand for cash to maintain their standard of living. In the past, some considered a reverse mortgage the mortgage of last resort. Over time, the reverse mortgage product has evolved into a financial tool, which has helped many people. If you are 62 years of age or older, you could be a candidate for a reverse mortgage. The home must be your primary residence and must meet HUD’s guidelines. The reverse mortgage process is fairly complicated and in fact, it is a requirement that the borrower take a class so they have a complete understanding of the process.
A reverse mortgage can be secured by your present home, but it can even be used for the purchase of a different home. A reverse mortgage might help you stay in your home longer, or you could sell your larger home and downsize using a reverse mortgage to buy your next home.
Many seniors are dependent on social security but find that it is not enough to cover their expenses. A reverse mortgage can be a useful tool to supplement social security by providing additional income. This loan is designed for seniors who need to eliminate a mortgage payment or need a source of income while staying in their present home. The potential loan amount is determined using a percentage of the home’s value. The percentage varies based on the age of the youngest homeowner. The homeowner still owns the home and can sell it anytime they choose without penalty.
Typically, a homeowner will never pay off the loan in their lifetime. Rather, the estate of the homeowner will do that. If there is any remaining equity after death, the equity passes to the estate. If the home eventually sells for less than the balance of the reverse mortgage, the estate is not liable for that shortfall.
To get a reverse mortgage, your house does not have to be free and clear, but there does need to be enough equity to pay off the existing mortgage. The loan amount available is determined by the age of the homeowners, current interest rates, and the appraised value of the home. The maximum loan amount will be subject to FHA loan limits. There are several reverse mortgage calculators on the internet. However, a full-time Certified Reverse Mortgage Professional (CRMP) should be consulted for calculations based on current formulas.
Reverse mortgages can certainly help seniors on a fixed income, but the reverse mortgage has also become an important part of overall financial plans for many families.
Generally, the amount of equity in the home determines qualification, which is why it can be a great help to low-income seniors. There is no employment requirement in order to qualify for a reverse mortgage, however, the homeowner needs to demonstrate the ability to pay HOA fees, taxes and insurance on the property, or set up a reserve to ensure that those expenses will be paid. The amount of reserve is based on a life expectancy formula.
In my upcoming article, Part 2 of this series, I will discuss in more detail the benefits and disadvantages of a reverse mortgage.
For more information on a variety of senior living topics, consider attending the Aging at Altitude Expo on Sat., April 23, 2022 from 9 a.m. to 2 p.m. at the Boulder JCC, 6007 Oreg Ave Boulder (corner of Arapahoe and Cherryvale).
By Duane Duggan. Duane has been a Realtor for RE/MAX of Boulder since 1982. Living the life of a Realtor and being immersed in real estate led to the inception of his book, Realtor for Life. For questions, e-mail DuaneDuggan@boulderco.com, call 303.441.5611 or visit BoulderPropertyNetwork.com.