Shrinking nest eggs have retirees searching for ways to stretch
their money. Some are discovering a new mortgage tool that can make
buying a house cheaper than renting.
"It is unbelievable. I call it a miracle myself," said Betty Swayngim, 69, of Asheville, N.C.
Swayngim said after her husband died two years ago she sold their
house and rented a condominium. But, she said, the $800 a month rent
was more than half her income and to make ends meet she continued to
dip into her savings.
Fearful for her future, Swayngim talked to a Wells Fargo mortgage
consultant in February who told her about a way for her to buy a
townhouse next door to the one she was renting. She could stop paying
rent and also would not have to make a monthly mortgage payment on the
She used a Home Equity Conversion Mortgage for Purchase that became
available in January through the Department of Housing and Community
The new tool is a variation of reverse mortgages, which for years
have allowed homeowners 62 and older to refinance their homes with no
need to repay the principal and interest until they move, sell or die.
While reverse mortgages originally were intended to help people
afford to stay in their homes, the new variation makes it easier for
seniors who do not own a house to qualify to buy one.
"They are going from renting to owning a house," said Gus Acevedo, a
counselor at Springboard Nonprofit Consumer Credit Management in
Acevedo said while some seniors have enough money in savings or a
retirement account for a down payment on a house, they don't have
enough income to qualify for a conventional mortgage. But they can get
a reverse mortgage, for which income is not a qualification, he said.
Not having to make another rent or mortgage payment provides them with
a sense of security and extra money for other living expenses.
So far Springboard has counseled about five clients who obtained
reverse mortgages for purchase, Acevedo said, and he expects demand to
Swayngim said that although she had $60,000 for a down payment, she
would not qualify for a traditional mortgage to buy a home because she
does not have the necessary income or credit.
But in April she was able to buy a two-bedroom townhouse by putting
$60,000 down toward the $132,000 purchase price and financing the rest
with a reverse mortgage.
"I pay nothing but homeowner association fees, taxes and insurance.
That is a far cry from $800 a month," she said. She added that now she
has no trouble paying her bills with her Social Security check.
The reverse mortgage for purchase, which is insured by the Federal
Housing Authority, also can assist those who want to sell the house
they own and buy another with the aim of downsizing, moving closer to
family or relocating to a retirement community.
"We all feel this is a tremendous opportunity for certain seniors
who may be moving out of state to be closer to children and
grandchildren or out of a house they can't afford or into a
single-story home," said Dean Jones, senior loan officer with Plaza
Home Mortgage in San Diego and a member of the board of directors of
the National Reverse Mortgage Lenders Association.
The Department of Housing and Community Development recently said it
had received 2,408 applications for the purchase loan product, and 124
loans had been completed.
Some lenders say they are just beginning to take applications.
Not FOR EVERYONE
The mortgage does not work for everyone. It requires a large down
payment. The amount that can be borrowed is determined by the home's
appraised value or sales price, whichever is lower, the borrower's age
and the interest rate. The older the borrower, the more he or she can
Under the loan, a home loses equity each year to an expanding debt.
When the homeowner sells the home or dies, the mortgage is paid off
from the proceeds of the sale. The borrower or borrower's heirs will
never owe more than the home's worth.
Reverse mortgages for purchase are an attractive new source of
business for lenders, said Gordon Jaus, MetLife Bank's regional manager
for reverse mortgages in the western United States.
Lenders do not have to wait for the mortgages to mature to get paid,
Jaus said, because government-sponsored Fannie Mae, the sole investor
in such mortgages, buys them after they are written.
Since closing costs for a reverse mortgage purchase are considerably
higher than for a conventional home purchase, the expense makes sense
only for a senior who is planning to stay a long time in the house he
or she is buying.
Under government guidelines, every reverse mortgage borrower first must receive counseling from a HUD-approved agency.
A reverse mortgage can expand a senior's home purchasing power. In
downsizing, for instance, sellers could retain more of the money from
the sales of their original homes in retirement savings and dispose of
their mortgage without having to pay all cash for another home.
A 62-year-old using a reverse mortgage could buy a house priced at roughly twice the amount of the required down payment.
The maximum price of a house that can be financed through a reverse mortgage this year was raised from $417,000 to $625,000.
Ronald Barnard, founder and chief executive of Norco-based Home
Center Realty, said the new reverse mortgage for purchase could be
valuable for seniors who want to sell houses near LA and move to
Riverside or San Bernardino counties to be near their children.
Bernard said in moving from the higher-priced Los Angeles area, home
sellers in their 70s could pocket a big chunk of money for retirement,
put 25 to 30 percent down on a new place "and still get a house as nice
or nicer and bigger and with no mortgage payments."
Pat Conway, 67, a real estate agent who lives in San Jose, salvaged
the remaining equity from her 1,300-square-foot house, which had been
losing value in California's busted housing market, and bought a
condominium in the same city. By using a reverse mortgage, she was able
to finance more than half the $225,000 price of the condo and discard
her monthly mortgage payment.
Conway said if she hadn't used the reverse mortgage, she would have
had to move out of the area, far from her children and grandchildren,
to find a condominium she could afford to buy for cash.
Although Conway knows the reverse mortgage could erode the equity in
her new condo, she said she is confident that real estate will
appreciate again and build back some of the lost equity.
Besides, she said, she feels safe realizing, "Even if they use up your equity, they can never kick you out of your home."
Reach Leslie Berkman at lberkman @PE.com or 951-368-9423.