Hard on heels of the Millennials who drove 37% of home purchases in 2021 are Baby Boomers. Surprisingly, not only are they often highly qualified buyers but they also comprised 32% of the home buyers and 43% of the sellers in 2021.
Projected to reflect 25% of the overall population by 2029, these borrowers have unique needs and qualifications as many no longer receive regular employment income, a key qualifier for many home loans. It is important to find a lender that specializes in Retirement Lending as you will understand when you read through the summary below.
Who Are These Programs Designed For?
Designed for borrowers who are no longer receiving employment income, these programs take a big picture view of wealth and offer flexibility in qualifying criteria. Regular employment income is not a must with alternative sources now weighing in for both purchase and refinance offerings. Some options can lower and even eliminate required monthly mortgage payments altogether.
Gaining in popularity are reverse mortgage products. Demand jumped 10.5% as we kick off 2022. Retirement lending DOES NOT equal a reverse mortgage. Many retirees still opt for conventional financing. The uptick in adoption of reverse products can be partially attributed to better educated consumers and the hike in home values. Aging homeowners can use their home equity to boost buying power while preserving retirement investment accounts.
Retirement Lending Categories
It is estimated over 10,000 Baby Boomers are retiring per day and clearly still buying homes. Financing options fall into 3 primary categories:
- Retirement Income Loans – qualified with retirement income sources such as Soc. Sec, pension, annuity/investment income, investment property income, note income, and other sources.
- Asset based loans – qualified based on investment and retirement account balances. Distributions may need to be established.
- Reverse Mortgages – the least understood mortgage product, but in some cases-including clients with significant assets-the loan that can be the optimal choice. Reverse mortgages may be used for either a home purchase or a refinance. A very common practice is establishing an available line of credit, also referred to as a HECM. Simply put, all you lose is a payment.
Retirement Income Loans
These most closely mirror a traditional home mortgage loan but negate the need for current employment in favor of pooling retirement income sources. We work through required documentation for underwriting alongside the buyer and ensure we maximize their qualifying income
Retirement Income Loan Highlights
- qualify buyers who no longer have regular employment income under unique underwriting guidelines
- conventional and jumbo loan programs available catering to a wide class of buyers
- preserve cash resources
Asset Based Loans
In the absence of employment income, we look to buyers’ asset accounts in addition to retirement income. Accumulated wealth in the form assets becomes a component of qualifying criteria. Appropriate distributions may need to be established.
Asset Based Loans Highlights
- qualify buyers who no longer have regular employment income
- accommodate changing lifestyle needs in a home
- maintain a home as an asset
Home Equity Conversion Mortgage (HECM) | Reverse Mortgage
Home Equity Conversion Mortgages (HECM) may be used to purchase or refinance a primary residence with benefit of no required monthly mortgage payment and/or be available as a standby line of credit. Designed for the 62+ borrower, loan amounts are based on the borrower(s) age and equity in the property. HECM products are non-recourse loans backed by HUD and insured by the FHA.
Common uses for Home Equity Conversion Mortgage (HECM) | Reverse Mortgage
- establish a standby line of credit with no repayment required
- support a move to a more retirement friendly area or home while preserving cash resources
- accommodate buyers moving to a higher cost market (most often moves to be near family)
- additional tax-free income that doesn’t impact Social Security or Medicare benefits
- potential additional funds for remodeling projects
HECM | Reverse Mortgage Highlights
- 40-60% down payment for purchases
- minimal income and credit requirements
- available in adjustable or fixed rate options
- equity line options can create cash flow while home value appreciates unaffected
- home to be used as a primary residence (must live in the home a minimum of 6 months annually)
- one of the borrowers on title must be age 62 at the time the loan closes
- borrower(s) remains on title to the home and may sell at any time without penalty
- non-recourse loan FHA guaranteed | At time of sale if the loan balance exceeds the home value, neither borrower nor their heirs are responsible for the deficit.
- borrower must pay all taxes, insurance and maintenance on the home
- mandatory mortgage counseling by an independent HUD-approved agency prior to qualifying
- purchases close in 30 days or less
- application can be completed on new construction prior to certificate of occupancy
Proceeds may be taken as
- A lump sum payout
- Distribution payments on a tenure plan – over the life of the loan
- Term payments – distributions over a set period
- A line of credit
- Distribution payments | Line of credit option mix – best of both worlds
Eligible Properties: Single family, 2-to-4-unit properties, manufactured homes, modular homes, planned unit developments, townhomes and FHA approved condominiums. Home must be a primary residence with occupancy a minimum of 6 months annually.
I work with clients each week seeking to explore the options available to them and welcome a discussion. If you are in the home buying market or seek an age in place strategy, I am a Certified Retirement Lending Specialist and will ensure you make the best choice for your financial future. Reach out here.
FHA/HUD programs require borrowers to maintain the home, pay homeowners insurance and property taxes as an obligation of the loan agreement. Most programs require the home be sold within 12 months of the borrower(s) no longer using the property as a primary residence.
All HECM programs are non-recourse HUD offerings insured by the FHA. At time of sale if the loan balance exceeds the home value, neither borrower nor their heirs are responsible for the deficit.
This information is provided as a guideline and does not reflect the final outcome for any particular homebuyer or property. The actual reverse mortgage available funds are based on current interest rates, current charges associated with loan, borrower date of birth (or non-borrowing spouse, if applicable), the property sales price and standard closing cost. Interest rates and loan fees are subject to change without notice. Following the closing of the home purchase, no further principal or interest payments will be required as long as one borrower occupies the home as their primary residence and adheres to all HUD guidelines of loan. Borrower must remain current on property taxes, homeowner’s insurance (and homeowner association dues, if applicable), and home must be maintained.
This information is not intended to be tax advice. Work with a tax professional to understands specifics to your financial situation
by Sheila Landis for The Landis Group
