April 3, 2014

Is the Reverse Mortgage for Purchase approved by Congress to help seniors buy a new home “too good to be true”?

danBy Dan Dolan
Dan Dolan Homes

I heard it again. A very knowledgeable senior visiting one of our model homes a couple weeks ago asked me about the Reverse Mortgage for Purchase program we have described in some of our recent advertising. “Mr. Dolan,” she said, “that Reverse Mortgage for Purchase you have been mentioning in your ads sounds too good to be true. Is it?”

I congratulated her for her direct approach. But before I describe what I told her, let me make a point here. Dan Dolan Homes has no vested interest in how a homebuyer pays for or otherwise finances their new Dan Dolan home. Regardless of the mode used, we receive our full payment at the time of the closing, whether the buyer pays cash or uses one of the several financing mechanisms available. Nor do we receive any consideration from any financial institution involved in the transaction. The purchase mechanism is strictly between the buyer and any financial organization that may be involved. So whether the buyers pay cash, use conventional financing, use a Reverse Mortgage for Purchase, borrow from Uncle Harry or use any other buying mode it’s all the same to us.

However, because we work with a number of buyers at our home sites in Davenport, Bettendorf, Clinton, Blue Grass, Muscatine and Coralville, we get exposed to what buyers use to execute their purchases. And since we are dedicated to helping our buyers preserve their wealth, we share that knowledge in the event a new buyer might find what we learned to be useful. Based on our experience, cash purchase and Reverse Mortgage for Purchase are the two most prevalent purchase modes that we see.

When Congress approved the legislation enabling the Reverse Mortgage for Purchase in 2008, the objective was to help seniors to move into housing to meet their desire for all-on-one-floor living and to accommodate possible future physical limitations – and to do so with as little capital as possible. Our Dan Dolan Homes senior housing also features walk-in-showers, stepless entry, wider doorways, main floor laundry facilities, convenient indoor parking, etc. Congress also recognized that not all seniors could afford or wanted to pay the prevailing monthly rates of independent living “hotels” whose average costs ranged from $30,000 to $50,000 annually. Accordingly, Reverse Mortgages are designed for seniors age 62 and over with down payments based on age—the older the buyer the lower the down payment percentage. At age 70, the estimated down payment would be about 40 percent or $100,000 on a $250,000 home. There would be no further mortgage payment until the home is sold at which time the proceeds would be used to pay off the mortgage and any excess funds would be paid to the seller or to the estate. And the estate would not be liable for any possible shortfall in the debt repayment.

In our view, the Reverse Mortgage for Purchase minimizes the amount of cash seniors require to buy a new home and it preserves their wealth by obviating the need to move to more costly independendent living facilities at rates ranging from $30,000 to $50,000 a year—or more.

Our Realtor hosts at the several Dan Dolan Homes communities in the area would be pleased to help you better determine if a Reverse Mortgage for Purchase is right for you. Visit with us any day or weekend in Davenport, Bettendorf, Clinton or at any of our home sites. For an appointment you can reach our office at (563) 381-4088. Visit with us soon while we have a wide selection of homes in all price ranges ready for early occupancy.

Filed Under: Finance