FHA insured loan
program for those 62+
Learn how you can
purchase your dream home
with as little as 44% down
and NEVER make a monthly mortgage payment
HECM for Purchase Program
Copyright © 2013
All rights reserved.
This buyer’s guide contains proprietary content and must not be duplicated or distributed without written permission. No part of this
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2
Why you should learn about the HECM program
If you and your spouse are at least 62 then this FHA-insured program
can help you move into a new home without having to deplete all your
life savings -- and save you thousands of dollars you would have
otherwise lost in the process.
What’s even better is you don’t have to wait for your existing home to
sell either.
Let’s face it, since the fall of 2008 there hasn’t been a lot of good news
coming from Wall Street and the banking industry, but the HECM for
Purchase Program comes at a time when a lot of cash-strapped folks are
trying to boost their monthly incomes.
Maybe you were one of the fortunate few who were not affected by the
economic downturn. However, the majority of retired Americans saw
their retirement portfolio values plummet, interest rates at banks fall
below 1%, and healthcare costs continue to skyrocket.
But help is now available through an FHA-insured mortgage program,
known as the HECM for Purchase Program. This little known program
has been available since January, 2009 and you may be wondering why
you haven’t heard about it until now. The most likely reason is because
currently most banks do not offer it.
The FHA developed the program because it noticed folks 62 and older
were selling their homes, buying smaller, more affordable homes and
then taking out reverse mortgages on the new properties. That meant
they were paying closing costs twice -- first on the real estate closing, and
a mortgage if they needed one to make the purchase, and then again
when they switched to a reverse mortgage.
But now, the HECM for Purchase Program allows you to buy a home
directly using a variation of a traditional reverse mortgage -- paying
closing costs only once, says Bill Glavin, special assistant to the
commissioner of the FHA. A sale of an existing home is not necessary
and is not part of this transaction.*
Our Big Promise to you
By the time you finish reading this report you will know the following:
What a HECM is
How to Qualify for a HECM
What type of property a HECM can be used for
Who really owns a HECM property
If a HECM property can be sold
HECM for Purchase Program
3
First let’s address the Big Problem
The Real Estate Bubble:
Maybe you’ve lived in your current home for awhile and you own it free
and clear. That’s great news; however the bad news is…your home’s value
may have declined sharply when the real estate market crashed in 2008.
It wouldn’t be a stretch to say that if your home was valued at $200,000 in
2008 then its current value may have dropped to $140,000 by the end of
2011. That’s a whopping 30% decline in value. This is happening in every
small town and big city all across America.
What makes this a big problem is when it comes time to sell your home.
Maybe you’ve been thinking about downsizing to something smaller, or
prefer a single story, or maybe you just want to spend your retirement
years living in a brand new or newer home with features like a golf course,
tennis courts, walking paths and a pool.
Lost home equity combined with longer timelines for selling your existing
home doesn’t have to squash your hopes and dreams of new home
ownership.
Before the HECM for Purchase Program your only option was to sell your
home for less and then purchase your new home with a lower price tag.
The reason for this is simple…if you receive less for the sale of your
existing home, then that has a direct impact on your purchasing
power for your new home.
Using a HECM, you really can move into your dream home
with as little as 44% down, while never having to make a
monthly mortgage payment. And you don’t have to wait for
your existing home to sell before doing all of this!
“Ok, now you got me
excited but what exactly
is the HECM for
Purchase program?”
4
In a nutshell...
The HECM for Purchase program is an age-based mortgage insured by the
FHA for folks aged 62 and older. Unlike a traditional mortgage, monthly
payments are deferred and the loan balance increases over time. Because
the loan is backed by the FHA, neither the borrower(s) nor their heirs are
personally liable for the debt.
So what does all that really mean?
It’s actually very simple…let’s say you use a HECM to purchase your
dream home and decide to move in 10 years. When you sell your home you
will receive 100% of the net proceeds after paying off the loan balance at the
time of the sale. This is exactly how a traditional mortgage works.
The primary benefit of using a HECM comes into play during your living
years in the fact that you are not paying a monthly payment to the
mortgage company, thereby increasing your monthly cash flow.
The secondary benefit is for your heirs. What if at the time of your passing
your loan balance is greater than the value of your home -- what happens?
In a traditional mortgage scenario your heirs would be forced to sell the
home at a loss and cover the difference. The terms of a HECM program
mandates that neither you nor your heirs are personally liable to cover the
difference if your home is sold for a loss. Simply put, it’s not your problem
and no one is coming after your estate for a settlement.
Let’s now take a look at a special Matrix that will give you a snapshot of
what’s possible for you using a HECM based on your age and purchase
price of your new home…
Using the Matrix on page 6, match your current age with one of the ages
listed along the left had side of chart. For example, let’s say you are
currently 75.
If your age is not listed then you can round to the nearest age listed. The
next step is to find the expected purchase price of your new home listed
along the top of the Matrix and round to the nearest price.
So for this example let’s use a purchase price of $200,000 and an age of 75.
You can see that you would only be required to bring a down payment of
$94,586 to closing and NEVER make another monthly mortgage payment!
“I was amazed when I heard about this program and thought there is no way this
could be true. Even after I learned about the program I couldn’t believe it was
true. It has meant that Penny and I could have happiness void of stress and worry
and branch out and live life. I would highly recommend this program to others.”
- Jim and Penny C.
HECM for Purchase Program
5
HOME
VALUE
62
65
70
75
80
83
150,000
$80,736
$78.486
$75,036
$71,286
$68,136
$65,886
200,000
$107,186 $104,186
$99,586
$94,586
$90,386
$87,386
250,000
$133,136 $129,386 $123,636 $117,386 $112,136 $108,386
300,000
$159,086 $154,586 $147,686 $140,186 $133,886 $129,386
350,000
$185,036 $179,786 $171,736 $162,986 $155,636 $150,386
400,000
$210,986 $204,986 $195,786 $185,786 $177,386 $171,386
450,000
$236,436 $229,686 $219,336 $208,086 $198,636 $191,886
500,000
$261,886 $254,786 $242,886 $230,386 $219,886 $212,386
600,000
$312,786 $303,786 $289,986 $274,986 $262,386 $253,386
DOWN PAYMENT
AGE
*The information being provided is for illustrative purposes only. Interest rates and funds available may change daily without
notice. This is not an offer, an application or a commitment to make a HECM mortgage to you. In order to be considered and
qualified for a HECM mortgage, you must submit a completed HECM mortgage loan application. Estimated fees, including
the up-front FHA mortgage insurance premium, range from $3,750 to $15,000 depending upon the value of the home
(included in mortgage). Closing costs vary from state to state and can affect down payment. Please check with your HECM
Specialist for actual figures. Your loan balance and accrued interest will become due upon a maturity or default event such as
no longer living in the home as your principal residence, failing to pay your hazard insurance or property taxes, or failing to
maintain your property.
LIBOR 225 Program variable rate 2.419% (10/31/2013) 12.419% Maximum APR over life of the loan.
FIXED Rate Loans Available.
6
A brief history of reverse mortgages
Although the HECM has only been around since January, 2009, the
traditional reverse mortgage has been insured by the FHA since the late
1980’s and appears to becoming a very popular financial planning tool.
The purpose of a traditional reverse mortgage is to allow homeowners to
tap into their home equity and convert that equity to cash without ever
having to make a monthly mortgage payment.
As compared to the traditional reverse mortgage, the HECM works
exactly the same on the “back end” but is the exact opposite on the “front
end.” Here’s what I mean…
Before the HECM for Purchase program was available folks were paying
cash or using a traditional mortgage for their dream home and then
pulling out cash using a traditional reverse mortgage. They loved having
access to real money and not having to make a payment, but they
weren’t happy about having to incur closing costs for 2 transactions.
With the HECM for Purchase program, they may have made a different
decision about the type of home they purchased (usually higher value
and options they really wanted).
The HECM for Purchase program can now accomplish everything
homeowners want and it is a single transaction.
HECM for Purchase Program
7
Let’s make this easy to understand
A Traditional Mortgage
Let’s say you secure a $100,000 mortgage
Each month you make payments (mostly interest at first)
Over time (30 years) the mortgage balance is paid in full
Balance goes down over time
$100,000
Mortgage
10
30
Payment In Years
How Much Did You End Up Paying For That $100,000 Mortgage?
Between 250,000 and $300,000!
Now let’s take a look at a HECM…
A HECM
Let’s say you secure a $100,000 mortgage
No monthly payments ever
Interest gets added to loan balance
Borrower and heirs are not responsible for any balance over the market value of the home*
Balance goes up over time
$100,000
Mortgage
10
30
No Payments
8
10 Things to know about the HECM for Purchase program
1.
Minimal Credit Requirements
2.
Minimal Income Requirements (for property taxes and insurance)
3.
No Employment Requirements
4.
No Debt-to-Income Ratios
5.
No Monthly Mortgage Payments EVER
6.
You can live in house until last borrower vacates
7.
You are not personally liable for the debt nor are your heirs
8.
Loan-to-Value Ratios up to 56% based on age
9.
Lending limits up to $344,000 based on age
10. Closing costs are included in mortgage
3 Steps to Qualify for a HECM
1.
You must be aged 62 or older
2.
HECM mortgage must be for your primary residence
3.
Money brought to closing must come from asset accounts or a gift
and cannot be money acquired through any debt
What type of property can I purchase?
1.
New or existing single family residence
2.
New or existing FHA approved Condo
3.
Maximum claim amount $625,500
What could Disqualify me?
1.
Unresolved Federal liens (tax or other)
2.
Chapter 7 Bankruptcy discharged less than 24 months prior to application
3.
Foreclosure, Short Sale, or Deed-in-Lieu within the past 3 years
4.
Existing FHA mortgage
5.
Property tax arrearages in the past 24 months
What am I responsible for?
1.
Property taxes
2.
Homeowners insurance and/or homeowners association dues
3.
General upkeep and maintenance of the home
*For HECM case #s assigned on or after January 13, 2014, new income and credit requirements apply,
including review of applicant’s credit history and cash flow/residual income.
HECM for Purchase Program
9
Frequently Asked Questions
What if one person is 62 and the other is 68?
The age of the youngest person is used.
What if one person is 62 and the other is 58?
If you are married, both spouses must be 62.
Does my credit matter and will a credit report be pulled?
Yes, a credit report will be pulled. What the lender is looking for are federal liens.
Any federal lien would need to be satisfied before the HECM could be used. All
revolving credit accounts must show a satisfactory payment history.
What if I have a bankruptcy or tax lien on my credit report?
Unlike a traditional mortgage, a HECM is not awarded based on credit scores alone.
A Chapter 7 Bankruptcy appearing on your credit report will need to have been
discharged at least 24 months prior to the application being taken. A Chapter 13
Bankruptcy appearing on your credit report must show a satisfactory payment
history. You may also need to provide a letter of explanation for these matters.
What types of property can I use the HECM with?
You can use the HECM Program to purchase any new or existing single family
residence. You can also purchase any new or existing FHA approved condo. If you
are looking at a particular condo community and want to know if it’s a FHA
approved, you can learn more by going to www.hud.gov and click on the
“Resources” tab. Then click on HUD Approved Condominium Projects. If the
community you are interested in is not approved don’t worry as we have helped
many builders and homeowner’s associations with this approval process.
Is the rate fixed or variable?
You can choose fixed or variable.
What do I need to know about the purchase contract when using a HECM?
When using the HECM the purchase contract cannot contain any language about
seller concessions or seller paid closing costs. In addition, there cannot be any
exchange of personal property or builder incentives. IMPORTANT: if you are
working with a builder and they are providing incentives, then a simple purchase
price addendum can be created. (see us for more details).
I’m building a new home so how does the HECM work?
Most builders require an earnest deposit to get the building process started and
possibly a 2nd deposit at a certain stage of completion. You will be required to pay
those deposits up front. At the time of closing, you will simply deduct all deposits
made from the down payment required to close. One thing you should know as well
is that your HECM loan process cannot start until the builder has been issued a
certificate of occupancy. Most times the HECM loan will close within 3-4 weeks of the
certificate being issued.
10
What is the HECM Counseling Certificate?
FHA requires each applicant to complete a counseling session with an independent
third-party counselor over the phone. The counselor will ask you questions and
answer any questions you have to confirm your understanding of the HECM
program. After this session a Counseling Certificate will be issued showing
completion. Your S1L HECM Specialist will provide you with a list of approved
counselors
How is the down payment determined?
Down payment is determined by three factors: Age of youngest borrower, purchase
price of home and interest rate
What documentation is required for the HECM?
Income and assets will need to be verified along with bank statements covering the
past 60 days will need to be provided. If the down payment is a gift, a paper trail
documenting that transaction will be required. A list of requested items needed will
be provided to you.
Who brings the money to the closing?
The borrower or homeowner is responsible for bringing the down payment according
to the Matrix, and the lender brings the balanced owed to the home builder or seller.
What are the closing costs?
The closing costs are similar to a regular FHA mortgage. 2.5% of the appraised value
of the home goes toward the mortgage insurance fund. There are also third party fees
like title, appraisal, and recording of lien that typically average around $3000-$3500.
These do NOT get added to the number shown on the matrix. The only money you
will be bringing is what is shown on the matrix.
Does my existing home have anything to do with a HECM transaction?
No. However, you are allowed to be on title to both homes which allows you to rent
or lease your existing home for cash flow. The only disqualifying issue would be if
your current home has an FHA mortgage balance. This would require you to
refinance into a non-FHA mortgage or sell your home before securing a HECM. If you
own other real estate at the time you close on a HECM, your income will need to
support the PITI (principal, interest, taxes and insurance) on existing real estate as
well as the property taxes, insurance and/or condo dues on your new HECM
property.
Who owns title to the home?
The borrower is fully vested on the title of the home. You can never lose your home
provided all taxes, insurance and any homeowner association dues are kept current…
and the home remains in good repair and home remains your primary residence.
What if I decide to sell my house in 10 years and the house has depreciated and
I owe more than what I can sell it for?
It’s not your problem as the house will be sold for fair market value and the proceeds
will pay off the mortgage. Any deficit will be paid by FHA to the lender.
HECM for Purchase Program
11
Isn’t the HECM just another program that will end up getting the Federal
Government in trouble?
No, this is not a tax payer funded program. Every person that acquires an FHA
insured loan contributes to the FHA mortgage insurance fund. In the case of regular
(non-HECM) FHA mortgage insured loans, the borrower has part of their monthly
payment go toward the FHA mortgage insurance fund. In the case of the HECM
program, the lender pays FHA 1.25% of the loan balance per year (accrues onto loan
balance) which creates a continuous stream of dollars to the insurance fund.
What happens when both spouses die?
The house will be left to the estate and will be settled the exact same way as any other
estate with a house involved. An appraised value will be determined and the house
will be sold for fair market value. If the sale price exceeds the mortgage balance then
the difference will go to the estate. If the sale price is less than the mortgage balance,
the estate will NOT be responsible for that deficit.
Isn’t this program only for people who don’t have money?
The program is being used by middle income earners as well as millionaires. It allows
financially savvy people to use their money for other things rather than tying a large
portion of it up in their home. This program is designed for people 62 and older who
are in retirement.
How does the bank/lender make their money?
On a traditional mortgage the bank receives interest as part of the monthly payment.
The HECM interest is accruing in the background which causes the balance to grow
over time. The bank makes their money on the total interest accrued at the time the
house is sold.
What if I already live in my dream home...can I still use the HECM?
You can use the HECM refinance option to pay off an existing mortgage or access the
cash that is sitting stagnant in your home.
How do I get started…what are the next steps?
Meet with your S1L HECM Specialist and get a HECM approval letter. Pick out your
new home, sign the purchase contract, and then contact us to get the process started.
The process takes 30 days or less. It’s that easy! If you are building a new home, the 30
days process will start at time the final “certificate of occupancy” is issued.
12
“This sounds too good to be true… what’s the catch?”
We hear this from nearly every single person who hears about the HECM
Program for the first time. The truth is there is no catch. Everything
presented in this report is factual and there is no “gotcha” coming at the
closing table.
One Word of Caution - Although it’s natural to consult friends, family
members, and trusted advisors about the HECM program; please be
aware there are many misconceptions regarding the program and many
people don’t have a full understanding of its benefits… we encourage
everyone to invite their friends, family members, neighbors and trusted
advisors to a public seminar or online webinar to learn more.
The problem is, most of the folks you talk with about the HECM
program will know very little about it. It’s human nature to be cautious
and skeptical of anything new so here is what we recommend…we
encourage everyone to invite their friends, family members, neighbors
and trusted advisors to a public seminar or online webinar to learn more.
We don’t mind if you invite someone to a one-on-one meeting as well.
The point is…this is a very exciting program and we want you to get all
the facts about it before determining if it’s right for you, fair enough?
Some other things you
may hear out there…
“This can’t be…
or there’s
something
wrong here”
HECM for Purchase Program
13
Why the HECM program is better than
paying cash or using traditional financing
It’s funny, people and organizations tend to criticize that which they
don’t understand. What you need to know is...banks that don’t offer the
HECM are telling folks to “be careful.” I wonder if their “be careful” tone
would change to “come on in” if tomorrow morning they began offering
the HECM program to their community…just a thought.
Now let’s talk Dollars and Sense as we consider your current options.
Side note: this is the part of the report where we’re talking directly to
those of you who need to prove that this works by using a calculator or
spreadsheet.
For those of you who need to see the numbers, here is your proof:
Ok, first let’s start off with an interesting question…
If given the choice between making a mortgage payment or not making a
mortgage payment, who would choose the
“I don’t want a mortgage payment option?”
The choice is obvious, right?
So what are your options for living in your brand new home and NEVER
making a monthly payment?
Option 1: Pay Cash.
The Problem is all your money
is tied up inside your house
which means you are not able to
use it, and secondly it’s not
growing as much as it could if it
were placed in growth
instruments.
14
Option 2:
Put the minimum amount
down and keep the rest liquid
to invest and grow or use as
you like.
Right and wrong mortgage options and how to know the difference
If you’re still reading then perhaps at the very least you are intrigued
with this new found information. However, our only purpose for
creating this report is to show you how dramatically different your
retirement years can be based on which mortgage you use for purchasing
your new home.
Here are 4 options for your consideration: notice your worst option is
renting and your best option is the HECM program. Look at your total
out of pocket expense in year 20 for all 4 options. With a HECM you have
the least amount out of pocket at $94,586.
Purchase Price:
Age: 75
$200,000
OPTION 1
Rent
OPTION 2
Regular Mortgage
$40,000 Down (20%)
5%-30yr. Fixed
OPTION 3
FHA HECM
$94,586 Down
(approx. 47%)
OPTION 4
Pay Cash
$200,000
$1400 per month
$810 per month
$0 per month
Money tied up and no growth
$16,800 per year
$9,720 per year
$0 per year
7 Years = $68,040
7 Years = $0
$108,040 Total
$94,586 Total
10 Years = $97,200
10 Years = $0
$137,200 total
$94,586 Total
15 Years = $145,800
15 Years = $0
$185,800 Total
$94,586 Total
20 Years = $194,400
20 Years = $0
$234,400 Total
$94,586 Total
7 Years = $117,600
10 Years = $168,000
15 Years = $252,000
20 Years = $336,000
HECM for Purchase Program
Potential home value
depreciation
7 Years = $200,000
10 Years = $200,000
15 Years = $200,000
20 Years = $200,000
15
Here are some case studies of how a HECM can work:
CASE STUDY 1: Married Couple
- Karl and Karen age 62
- Want to purchase a new home for $200,000
The Problem
- They want to downsize out of their
big house and into a smaller home
and sell their existing home quickly
- They don’t want to wait until their
current home sells because the seller
of the new home they want will
reject any offer from them that
includes a contingency of selling
their existing home first
Solution
Use the HECM program
Bring $107,186 to closing to purchase the $200,000 home
Withdraw funds from asset account for down payment and
replenish the funds when the existing house sells
They avoided having to live in the existing home during the
showings
CASE STUDY 2: Single Person
- Gwendolyn age 83
- Considering renting or leasing a Condo for $1600 per month
The Problem
- She wants to keep her payment
below $1600 because of her fixed
budget
- She wants to be in a community
with a pool, walking paths and
activities but not sure she can afford it
- Confused about renting versus
buying
16
Solution
Use the HECM program
Bring $87,386 to closing to purchase a new $200,000 Condo with
everything she wants
Use a $100,000 maturing CD for the down payment
Instead of spending $100,800 in rent for 6 years, she only spent
$87,386 total and lives in her dream home for the rest of her life
CASE STUDY 3: Married Couple
- Nicolas and Camila age 75
- Want to purchase a new Condo home for $200,000
The Problem
- Have $300,000 in liquid assets but
Nicolas does not feel comfortable
using all the assets to purchase a
home
- They are considering a $120,000
down payment and using the
remaining assets to pay the $698
per month mortgage payment
- They are looking at a condo for
$200,000 but Camila really wants
some of the beautiful options
HECM for Purchase Program
Solution
Real Estate agent recommends using the HECM Program
Camila upgrades standard $200,000 condo to $250,000
Nicolas is happy because he only has to bring $117,386 to
closing
Nicolas keeps liquid assets of $182,614
They saved $83,744 in mortgage payments over 10 years
Nicolas invested $182,614 at 4% over 10 years earning
$73,045 growth on his money. Total growth and savings of
$156,789.
17
Letters from clients
Over the years we have received many letters from clients, each with a different story. It is within each of
these letters that we find the true reason for doing what we do. We hope you enjoy reading these small
tokens of appreciation that mean so much to us!
“The qualifying
process seemed lengthy and complicated,
but your efforts
smoothed the path and
kept us on track. We
would certainly
recommend the HECM
Program and your
considerable
assistance.”
“When I heard about
the HECM for
Purchase Program I
was totally surprised. I
was so pleased to move
into my beautiful
condo. It meant that I
could save my money
and use it for other
things but still have my
dream home.”
- Dale and Coralee H.
- Cynthia M.
“I was amazed when I
heard about this
program and thought
there is no way this
could be true. It has
meant that Penny and I
could have happiness
void of stress and
worry and branch out
and live life. I would
highly recommend this
program to others.”
“I was skeptical when I
heard about the
program but highly
interested. It could fit
our needs and estate
planning while
acquiring a home more
fitting for our need as
we go into our 70’s.
This is a program I
would highly
recommend to others.”
“When I first heard
about the program I
was amazed and leery
until I understood the
program. It gave me
the ability to buy a
much better condo and
decrease my monthly
expenses without
having to worry about
financing.”
- Jim and Penny C.
- Warren W.
“I’m a retired doctor and
have been dealing with
financing homes my whole
life and this sounded too
good to be true. When I
found out it wasn’t, I was
extremely pleased. As you
know, Harriet and I were
recently married and
wanted a home we could
call our own. This is a
program that I have
recommended to many of
my friends.”
- James G
18
- Zoe M.
What’s the next step?
Schedule your approval meeting where we will provide a
HECM approval letter and answer any questions you have
and cover the details of the entire process
Find your dream home. (If condo, it needs to be in an
FHA approved community)
Contact us to get the down payment amount you would
need to bring to closing. This will be based on the age of the
youngest person
Complete the purchase contract for your new home. Have
your Realtor call us to review important aspects of purchase
contract
Schedule your consultation where we’ll answer any
question you have and cover details of the entire process
Contact info:
Name: Laura Brannock
Phone: 704-602-5193 Office
336-516-3123 Cell
Email: laura.brannock@S1L.com
HECM for Purchase Program
19
Contact info:
Laura Brannock
HECM for Purchase Specialist
NMLS# 540288
10130 Perimeter Parkway, Suite 200
Charlotte, NC 28216
Office: 704-602-5193
Cell: 336-516-3123
Fax: 855-423-5678
Email: laura.brannock@S1L.com
HECM for Purchase Program