Reverse mortgage for purchase loans work much like other types of home purchase financing. Even so, many real estate agents, financial advisers and loan officers don’t know how they work, according to experts who spoke this week at the National Reverse Mortgage Lenders Association (NRMLA)’s Annual Convention & Expo in San Antonio.
Peter Morris, an Arizona-based senior vice president at Revolution Mortgage, said the ideal reverse for purchase prospects are seniors who want to upsize, downsize or relocate. He also frequently works with borrowers who don’t qualify for traditional 30-year loans or home equity products due to debt-to-income or credit constraints.
Morris said he’s seeing rising interest in these financing options among real estate partners. He recently hosted a continuing education course where “I had the most Realtors that I’ve ever had in a CE class.”
Senior homeowners with high levels of equity and a need to move are able to utilize the federally insured Home Equity Conversion Mortgage (HECM) program or proprietary programs to purchase their next primary residence. The typical down payment ranges from 45% to 65%, depending on the appraised value, interest rate and age of the borrower. For example, an 80-year-old buyer has a smaller down payment requirement than a 70-year-old buyer since they have a shorter life expectancy.
Morris relayed a story about an agent partner in North Carolina with five listings between $400,000 and $800,000. While an all-cash buyer with $400,000 — typically a highly coveted buyer — could afford only some of these listings, a reverse for purchase borrower with the same $400,000 might be able to afford each of them, he told the agent.
“You have to educate your Realtor and show them that they are losing out, and they have the potential of making a lot more money with such a simple product,” Morris said. “I can show you how you can do less transactions and make more money, because you can buy more of a house in a reverse purchase.”
Is the process slower?
Shain Urwin, national reverse mortgage director for C2 Financial Corp., and Agi Glukhovskiy, SVP of business support and operations for Rate, explained some of the differences between traditional and reverse for purchase deals.
Borrower counseling through an independent third party is required on all HECM for Purchase deals insured by the Federal Housing Administration and for most proprietary reverse mortgages. Reverse transactions also have unique forms, including a Good Faith Estimate (GFE) and a HUD-1 form, rather than the Loan Estimate and Closing Disclosure forms commonly associated with forward mortgages.
Glukhovskiy said the absence of conventional forward lending documents are actually an advantage for reverse deals since they won’t have a mandatory federal waiting period. Urwin noted that a handful of states, such as California and Idaho, have implemented their own waiting periods. Beyond that, however, the steps are largely the same as any traditional deal as the process moves from application to underwriting, appraisal, title and approval.
The panelists sought to dispel ideas that reverse purchases are slow to close. Glukhovskiy said her team has wrapped them up in seven to 10 days, and although the average is 20 to 25 days, the idea that the process takes 45 days is “absolutely nonsense,” she added. Neil Sweren, a Baltimore-based reverse division manager for Atlantic Coast Mortgage, recalled a recent deal that closed in seven calendar days.
Angel Booth, national sales manager for title and settlement services provider Premier Reverse Closings, clarified to HousingWire‘s Reverse Mortgage Daily that the typical 10- to 15-day process cited by lenders is “absolutely attainable” once the loan is clear to close.
Glukovskiy said the keys to a quick closing are finishing counseling prior to the start of the home search process, collecting income documentation, and setting expectations with agents and lending operations staff. Loan officers should read the purchase contract and know every contingency date, Urwin said, as trouble begins when they overpromise. And Sweren pointed to timing: If a closing date gets pushed back and falls within six months of the borrower’s birthday, the amount of cash needed to close can change.
Simultaneous closings, where the borrower sells one home and buys another, can be difficult but not impossible to pull off. Glukovskiy recommended that sale proceeds should go straight to the title company handling the property being purchased, rather than going to the borrower.
Urwin told a cautionary tale about a borrower who took their sale proceeds and paid down a home equity line of credit on another property, leaving them ineligible to use the borrowed funds to buy their new house. “I learned from that very painfully, but those kinds of nuances matter when tracking those funds,” he said.
Winning over agents and advisers
For loan officers who are new to reverse for purchase deals, panelists urged them to study up before they present the benefits to agents.
Continuing education courses are a prime way to teach agents, with Sweren saying they often come to his classes to help their own parents or grandparents. Many agents happen to be senior homeowners and may need assistance for themselves. Being the go-to loan officer when a listing includes a reverse mortgage should be part of everyone’s market strategy.
The panelists admitted that financial advisers may be a harder sell. Urwin noted that because these referral partners focus on cash and assets under management, they may not recommend a client put their cash into a home. But he relayed a success story where an adviser partner took out a reverse mortgage on his own home, then began sending referrals to Urwin when he had older clients who wanted to pay cash for a house.
The goal in these situations, Urwin said, should be to avoid an all-cash purchase. Clients should consider long-term tax strategies and the choice between leaving illiquid home equity or highly liquid cash to their heirs.
Sweren also mentioned the advantage of reverse mortgages in planning for rising healthcare costs, something he believes the industry “has not gotten past the tip of the iceberg” with. HECM lines of credit serve as “the most flexible borrowing instrument in the market by far,” he said, as borrowers can qualify for relatively large amounts, withdraw funds as needed, and have available proceeds grow over time based on the interest rate and annual mortgage insurance premium.
Sweren said reverse mortgage professionals should remember that “this is a very emotional transaction for seniors” as they may be leaving a home they’ve lived in for decades. They also may be widows or widowers who didn’t handle their family’s finances, meaning they’ll need additional support to get the deal over the line.
“Respecting that and understanding the emotional journey your client is on — and explaining that to the rest of the team that’s involved — is super helpful,” he added.
