Our New Loan Limit Of $625,500 How Many Doors Does it Really Open?
Friday, 01 May 2009 15:58
For at least the last ten years I heard it was “for sure” that this would be the year FHA was going to raise its loan limits to match Fannie and 4Freddie. The years came and went. I heard it for so long that I actually stopped paying att enti on. When it fi nally happened I almost didn’t believe it. Low & behold, at the end of 2008, we had an FHA loan limit of $417,000. Being an old FHA guy (and I use the term old very loosely) I was very happy. Being that my chosen career for the last several years was reverse mortgages, suddenly my happiness turned into elation.
"...frankly I was tired of hearing that ‘reverse mortgages were just for poor people’ or that ‘it was a product of last resort’.”
In Florida, the state where my company does its primary business, the average FHA county loan limit was slightly above $200,000. This new limit represented a 100% increase and frankly I was ti red of hearing that “reverse mortgages were just for poor people” or that “it was a product of last resort.” The new $417,000 loan limit immediately opened doors for my entire company. Then aft er waiti ng for more than ten years for this new loan limit, to have it increased again within ninety days to $625,500, was just too much…my elati on now turned to euphoria! The Reverse Mortgage is just for poor people…I don’t think so! The new loan limit of $625,500 brings this product to a whole new level. And at that new level is a totally new set of demographics. As I have writt en in past arti cles, one of my favorite referral sources for reverse mortgages is fi nancial planners. In most cases, a fi nancial planner’s client has a larger asset base and maintains a higher quality of life than your typical reverse mortgage client. So many ti mes I have heard from these fi nancial planners, and other trusted fi nancial advisors, “my client lives in a free & clear million dollar home” and “his portf olio is doing very well.” How about this one? “At this point in my client’s life why would they want to tie up a million dollar asset (their home) and only access a couple of hundred thousand dollars?” You know, that’s a good a question. And at this point in ti me, we have a great answer. Guess what Mr. Financial Planner? Your client’s million dollar home is now worth $650-700 thousand dollars, if they are lucky. And, their portf olio has probably decreased approximately 40% since last year. Thanks to our new higher loan limits maybe a reverse mortgage is the best opti on for your senior client base to maintain their higher than average quality of life. Let’s look at these illustrati ons below:
Age of Youngest Borrower
Home Value Funds Available
65 $625,500 or above $372,632*
70 $625,500 or above $397,864*
75 $625,500 or above $425,047*
* Above fi gures are based on the HECM Fix Closed End
The truth of the matt er is a tremendous amount of homes, above
the value of $625,500, are owned in this country by seniors.
Home Value Funds Available
65 $625,500 or above $372,632*
70 $625,500 or above $397,864*
75 $625,500 or above $425,047*
* Above fi gures are based on the HECM Fix Closed End
The truth of the matt er is a tremendous amount of homes, above
the value of $625,500, are owned in this country by seniors.
With seniors depleti ng their savings at a record pace and the most volatile investment environment we have experienced in decades decreasing their once lucrati ve reti rement accounts, it certainly appears the funds available from a reverse mortgage are an option for the upper income sector. With the total absence of a jumbo product, this could have such far reaching aff ects on our emerging industry. Let’s look at a few other examples of how we can change the lives of the upper income senior: Present value of their home $750,000, age 65, and present mortgage balance of $350,000 with a present mortgage payment of $1,987.26. (Based on 5.5% fi xed 30 year rate) Based on the above illustrati on a reverse mortgage could payoff their existing mortgage. The end result, we have given the client an extra $1,987.26 in disposable income per month. If this client were retired and living on $100,000 per year, the reverse mortgage just increased his/her income by 24%! But reverse mortgages are just for poor people….. Here are two more examples, my company facilitated, of how the upper income senior client used a reverse mortgage: A 67 year old borrower, who did not consider himself retired, obtained a $300,000 reverse mortgage and purchased two waterfront condos @ $150,000 each. Just about ago these condos were selling for $250,000+ each. When asked the client why he used the reverse mortgage for purpose he stated “there is no bett er investment than estate right now and how else could he purchase waterfront property with no monthly debt service?” He continued, “in several years I will sell these units for twice what for them, payoff the reverse mortgage and be hundreds thousands of dollars ahead.” But reverse mortgages are just for poor people… When we sti ll had a jumbo program we facilitated thistransaction:
A borrower obtained a $750,000 reverse mortgage. He purchased a 15 unit apartment complex that appraised $950,000. The units were throwing off $12,000 per month rental income. This 62 year old entrepreneur created an additional $ per year in income purchased an asset $200,000 below appraised value and secured financing that comes with obligation to be repaid in his life time! And let’s not forget, the apartment complex is free & clear.
But reverse mortgages are just for poor people… Every senior plans to live a life of comfort and quality in their retirement years. Certainly we all want this for our parents and one day for ourselves. Undoubtedly, a free & clear home is part of that reti rement plan. But is having the house free & clear the real goal or is having no house payment in their retirement years the real goal? The real truth is a combinati on of longer lifespan, forced early retirements for our seniors in today’s market place, and dwindling investment accounts has totally redefi ned the “retirement years.” Many seniors are actually planning on having that “part ti me job” well into their 70s. The Purchase HECM, with the new increased loan amount, can and will change this situati on if professionals like us make the effort to do so. Here is a prett y common example. A senior couple sells their home and is ready for their reti rement years. Even in today’s environment the odds are sti ll extremely strong that they lived in that home for many years and it is either free & clear or has a relati vely small mortgage remaining. Instead of using all of the profi ts of the sale of their present
home to purchase their reti rement home why aren’t we, as an industry, suggesti ng to these seniors they place 50% of their proceeds down on their new home and obtain a reverse mortgage for the rest? The result; they have no house payments during their retirement phase of their lives and they have tens or in many cases hundreds of thousands of dollars in additi onal liquidity. These additi onal funds can be used to fund their reti rement years in many ways. Quite possibly, these extra funds may allow
them to eliminate that part ti me job they had thought was necessary to maintain a strong quality of life. A prett y incredible thought for an industry that is in its infancy… a prett y incredible thought that the reverse mortgage could have this type of aff ect on so many aspects of our society…a pretty incredible thought that you & I are a part of it. Have a great month. Make a diff erence in as many seniors’ lives as you can.
home to purchase their reti rement home why aren’t we, as an industry, suggesti ng to these seniors they place 50% of their proceeds down on their new home and obtain a reverse mortgage for the rest? The result; they have no house payments during their retirement phase of their lives and they have tens or in many cases hundreds of thousands of dollars in additi onal liquidity. These additi onal funds can be used to fund their reti rement years in many ways. Quite possibly, these extra funds may allow
them to eliminate that part ti me job they had thought was necessary to maintain a strong quality of life. A prett y incredible thought for an industry that is in its infancy… a prett y incredible thought that the reverse mortgage could have this type of aff ect on so many aspects of our society…a pretty incredible thought that you & I are a part of it. Have a great month. Make a diff erence in as many seniors’ lives as you can.
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