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Did you know that in 2022, both younger and older Baby Boomers<\/a> made up the largest generation of American homebuyers? This cohort accounted for 1,950,000 properties \u2014 equating to 39% of total homes purchased!1<\/sup><\/p>\n With over 12,000 Americans turning 65 every day in 2024, this burgeoning market will undoubtedly continue to bring more buyers and sellers to the table over the next decade.2<\/sup> However, these potential clients will also face challenges \u2014 namely market volatility, unpredictable interest rates<\/a> and limited purchasing power due to increasing debt.<\/p>\n That\u2019s where reverse purchase financing comes into play, the funding option specifically designed for older Americans. With this option, older homebuyers can increase their purchasing power with fewer financial worries and limitations as they move towards or through retirement. For real estate professionals, this option presents an opportunity to capture more sales.<\/p>\n Yet staggeringly few are aware of its existence.<\/p>\n Established in 2009 by the Department of Housing and Urban Development<\/a><\/strong> (HUD), reverse purchase financing or \u201cHome Equity Conversion Mortgage (HECM<\/a>) for Purchase loan program\u201d allows those aged 62 and older to purchase a new house or certain condos by combining a one-time investment of their funds (such as profits from the sale of their current home) with reverse mortgage<\/a> loan proceeds to complete the purchase. They own the home with their name on the title, as with any mortgage, traditional or reverse.<\/p>\n But unlike financing with a traditional mortgage, monthly principal and interest payments are not required on the loan, so long as the homeowner keeps up to date with real estate taxes, homeowners\u2019 insurance and property maintenance. As long as the buyer complies with these ongoing loan obligations, a HECM for Purchase loan doesn\u2019t have to be repaid until a maturity event, such as when the home is sold or is no longer considered their primary residence.<\/p>\n The down payment percentage required on the loan is higher than with a traditional mortgage (usually 60% to 65% of the cost of the new home)3<\/sup> and the owner does build less equity<\/a> \u2014 but unlike a traditional loan, the borrower is not at risk of owing more than the home is worth at the time of repayment when the home is sold due to its non-recourse feature.<\/p>\n The HECM for Purchase is not a refinancing tool; it is not akin to a Home Equity Line of Credit (HELOC<\/a>). Rather, it\u2019s an age-specific, federally-insured loan option that helps eligible buyers aged 62+ make a residential purchase while retaining more of their money than they could with a conventional mortgage or an all-cash purchase, generally leaving their savings and assets intact for retirement and any heirs.<\/p>\n In addition to improved cash flow throughout the life of the loan due to the optional repayment feature,4<\/sup> buyers also enjoy additional spending power with reverse purchase financing. They are able to maximize their cash investment on a new home and more comfortably afford an upscale home or a property in a more desirable location \u2014 whether it be closer to family or in a luxury housing development with additional amenities.<\/p>\n Reverse purchase financing can help older homebuyers improve their financial flexibility when purchasing a new home and help real estate professionals expand their business within the fast-growing segment of the market. Yet despite this, it remains a niche product that is largely misunderstood or maligned, and quite frankly, unknown to the general public.<\/p>\n Consumers who are introduced to the HECM for Purchase loan option are often skeptical at best, with many thinking it\u2019s too good to be true. But the fact is, most people simply don\u2019t know that a new home can be purchased with a reverse mortgage. And after years of advertisements and TV commercials promoting the benefits of better-known reverse mortgage loan uses like continuing to live in your current home while tapping your home equity,4<\/sup> who could blame them?<\/p>\n According to the Federal Housing Administration<\/a><\/strong> (FHA), there were only 2,063 HECM for Purchase loans endorsed in 2022 \u2014 that\u2019s less than 1\/10th of 1% of homes sold last year.5<\/sup> But even as professionals and consumers continue to leave the benefits of reverse purchase financing on the table when transacting, advancements to the now 15-year-old program continue.<\/p>\n Recently, Interested Party Contributions (or seller concessions) have been allowed with HECM for Purchase loans. This is a huge boon for the program as seller concessions have not been allowed within the FHA-insured program since its inception.<\/p>\n With this latest enhancement, homebuyers aged 62+ can participate in seller concessions for up to 6% of the sales price toward borrower origination fees, other closing costs, prepaid items, and discount points. The 6% limit also includes payment of the Up-Front Mortgage Insurance Premium (UFMIP).<\/p>\n \u201cThe lack of seller concessions may have been one of the biggest reasons that reverse purchase financing has not become more mainstream and widely promoted to and by the Baby Boomer generation,\u201d said Rob Cooper, National Purchase and Builders Sales Leader for Longbridge Financial<\/a><\/strong>. \u201cWe in the industry are very hopeful that this will be an eye-opener, especially for real estate agents and builders to start recommending this product to clients more regularly.\u201d<\/p>\n The real estate industry has flourished over recent years due to record-high home appreciation, lower interest rates and motivated clients \u2014 but as they say, nothing lasts forever. In fact, a veritable upheaval is headed for the housing market already.<\/p>\n According to financial analysts, a \u201cSilver Tsunami\u201d is headed our way, beginning in 2024, as millions of homeowners aged 50 and older make the move to downsize as they inch closer to retirement.6<\/sup><\/p>\n \u201cThe truth is the real estate industry hasn\u2019t really needed to learn about this financing option over the past decade. We have experienced one of the longest \u2018seller\u2019s markets\u2019 in our country\u2019s history, so there wasn\u2019t an immediate need for real estate professionals to educate themselves on financing tools beyond traditional mortgages or all-cash transactions,\u201d Cooper said.<\/p>\n \u201cThey have been able to reach sales goals with relative ease for over a decade. But economic forecasts and housing market predictions suggest that businesses need to be prepared for another shake-up in the near future. And reverse purchase financing may finally find its rightful place within these industries,\u201d he continued.<\/p>\n The reverse mortgage (HECM) for purchase program was designed to help older Americans buy a more suitable home in retirement, while still conserving cash and assets for future expenses.<\/p>\n And as an added bonus, the program can help real estate professionals turn more shoppers into buyers and close the gap on aging fence-sitters who are hesitant to begin the home buying process all over again in retirement, all while the U.S. stares down the barrel of a considerable economic downturn.<\/p>\n It begs the question, \u201cWhen will more real estate agents and builders begin recommending reverse purchase financing to more eligible American seniors as a viable, strategic funding option to buy the home of their dreams in retirement?\u201d<\/p>\n The reverse industry has been working hard for years to educate real estate agents, builders and loan officers on the advantages of reverse purchase financing, and Longbridge Financial, LLC is making strides in expanding educational efforts.<\/p>\n Last year, the company expanded its Reverse for Purchase Roadshow series to help spread the word about the opportunity at hand. The goal is to educate loan officers who are already Longbridge partners, as well as loan officers unfamiliar with reverse mortgages, on how big of an opportunity reverse purchase financing presents, especially in the current market.<\/p>\n Longbridge also continues to examine more strategic ways to brand the product, but ultimately, it all comes back to education. The company consistently holds reverse for purchase training sessions on the product, offering insight into best practices when communicating expectations to all parties involved \u2014 as well as a plethora of supporting marketing collateral.<\/p>\n To learn more about Longbridge Financial\u2019s HECM\/Reverse for Purchase program, contact an Account Executive at wholesale@longbridge-financial.com<\/a>.<\/p>\n 1<\/sup> Home Buyers and Sellers Generational Trends (nar.realtor)<\/a> 4<\/sup> Borrower must keep up to date with real estate taxes, homeowners insurance, and property maintenance<\/p>\n 5<\/sup> 2022 Annual Report to Congress Regarding the Financial Status of the Federal Housing Administration Mutual Mortgage Insurance Fund (hud.gov)<\/a>6<\/sup>Silver Tsunami Predicted to Overhaul Housing Market in 2024 | Entrepreneur<\/a><\/p>\nWhat is reverse purchase financing?<\/strong><\/h2>\n
Very few are reaping the benefits, but they keep on coming<\/strong><\/h2>\n
The times they are a-changin’<\/strong><\/h2>\n
The bottom line<\/strong><\/h2>\n
Longbridge Financial is taking the lead<\/strong><\/h2>\n
2<\/sup> About 12,000 people per day will turn 65 in 2024, but many retirees aren\u2019t ready – Reverse Mortgage Daily<\/a>
3<\/sup> This down payment range assumes closing costs will be financed into the loan. The information being displayed is for illustrative purposes only. Actual cash required may vary and is based on age of youngest borrower, interest rate, home value, and other factors. Please contact Longbridge Financial LLC for details about credit costs and terms.<\/p>\n