Yes, You Can Purchase With a Reverse Mortgage

So Cliff, you're with All Reverse Mortgage Company, and you focus mainly on helping people buy with a reverse mortgage versus just stay in their homes with a reverse mortgage.

Correct. The reverse mortgage is all we do at All Reverse Mortgage.

Okay.

And for several years, and more and often now, we're seeing a lot of our customers come in and they are buying homes with the reverse mortgage program, something that the vast majority of people just don't understand or haven't heard about.

That's your expertise, Cliff, right?

Yes, that's, that's one of the only things we do. Well, of course we do reverse mortgages for people who wish to stay in their homes, and a lot of people have seen or heard about that type of program from, you know, second-tier celebrities on television. And, but that's not, I mean, that's not what we're talking about right here. This is something that is entirely different. It's a way that you can purchase a new home. Yeah. And you put down a significant down payment. It ranges based on your age.

Okay.

And it's anywhere from 30% to 50% down.

Okay.

And for the rest of your life in that home, you are mortgage payment free.

Mm, okay. I'm like, I'm excited.

Okay, in a way, it's almost like you're buying the house for your down payment, because a lot of retirees look to buy homes, or their last home, with all cash because they don't want mortgage payments for the rest of their life.

All right, listen, music's coming on, which means we're going to chill for a few minutes. Stay with us. When we come back, we're going We're going to get into the details of how to maneuver a reverse mortgage to buy. We're here with Cliff Auerswald. Cliff, you're coming back after the break, yeah?

You got it.

You're going to reveal everything to us, okay?

I will.

Cliff, welcome back. So let's talk a little bit about this idea of literally buying with a reverse mortgage. Give me the— who can qualify for this?

So you have to be at a minimum age of 62 or older. Okay, you can, you can actually have a younger spouse now. That's one of the new improvements to the program that happened late this year in August. Okay, and there is no income or real credit score.

So wait a second, so in other words, before this year, before this changed, if you were 62 and wanted to do this, and if you had a spouse who was 52, you couldn't get a reverse mortgage?

You could, but it would leave that, that younger spouse at vulnerability. Not having that— see, the way that the reverse mortgage works, all based on actuarial tables, okay, based on your age. So the amount of money you can get is based on your age and factored in how long we think they're going to live for. Okay, so before, you had to be 62 to be on the loan, and the non-borrower spouse who was younger, it just created a bunch of problems. So FHA has improved that scenario to allow for the non-borrowing spouses to be protected.

Because this is an FHA loan, uh, uh, uh, this is an FHA loan, which is actually means that it's protected and it used to not be, which is why people and still have this idea that it's a scary, scammy something. And that's because in the old days these particular types of loans were not protected by the FHA.

Yeah, and there were— there's always some predatory guy in any industry, you know, and the media for a while, you know, had their heyday with a couple scenarios that happened under the program. But FHA has really improved it over the years. It's really becoming more of a mainstream option. The interest rates are favorable. The closing costs are now in line with other types of mortgage. That was a huge drawback. I've been doing reverse mortgages since 2005, and when I started doing them, the closing costs to get into one of these were just outlandish.

Really?

Get up to $20,000. Wow. Fees, because the insurance costs were so expensive back then. But it's becoming more mainstream. The average set of closing costs is really in line with other types of mortgages now.

Okay.

So it's not looked at as though it's like a predatory type of loan. The rates are good. The fees are good. It is a viable option, especially if you're a baby boomer and you're tired of making mortgage payments payments, and you know, you could sell your house, pay off that mortgage, buy something else with no mortgage payments, or even more of a suitable property for your retirement needs. A lot of people like single-story homes. You know, you got to think about aging in place. Retirement is—

Well, let me just interject here. There was an article that just came out, "Is This the Nation's Next Housing Crisis?" And it was saying that the lack of affordable accessible and well-located homes is failing to meet the needs of an aging population and could be the nation's next housing crisis.

Sure.

The, the study, which is put on by the Harvard Joint Center for Housing, it says that there's 3 main points, 3 main issues. Number 1, the cost of renting and home ownership is too high, which again falls in line with, okay, we need to sort of downsize. Number 2, many homes and apartments lack basic accessibility features, and older Americans say they want to age in place in their current home, but they're often living in car-dependent suburbs and rural areas, which makes it more difficult. In San Diego, of course, it would be just more suburbia. In fact, the majority of folks that I talk with that aren't already in an urban village in San Diego where they can walk to restaurants and stores and, you know, kind of have a social life built into their neighborhood, the ones that live out in suburbia are wanting to move. Into these urban neighborhoods. So that is a very large population. This article saying that if things don't change, lower-income older people will be compromising their well-being in many respects. In 15 years, 1 in 5 Americans will be 65 or older. And so we're really dealing with a scenario here. So this— there's a lot of folks that say, well, you know, I got my house paid off, but, you know, I really don't want to live here anymore. I need to either downsize into something smaller. I've either lost I lost my spouse, or my kids are grown up, or, you know, I don't need this much space. I need extra money. And I also— so if they're coming from the suburbs, they need that location in the urban village area. But if they're already in an urban village area, a lot of them are saying, hey, you know, this is now too big even for an urban village, and I want to downsize to something— stay in one of the urban villages surrounding downtown, but downsize a bit. And so you're saying that they can do that, and they can do that not only become mortgage-free, but also get some cash at the same time. So we're talking about the best of all worlds. Let's, let's do a scenario, Cliff. Let's do a scenario. So let's say someone was in a house and it's worth— let's say they're 65 years old, okay?

Okay.

They're, they're in a home, let's say, worth around a million, okay? They, let's say, they own it outright. Okay, they don't owe anything on the home. And they, but they're saying, you know, it's too big, I don't really need this much, I actually need more cash. What kind of scenario do we have for them?

Well, you know, you could take out a reverse, one scenario is you can take out a reverse mortgage on the property you're already in. Okay. But if that's not right for you, if that's not going to be the place that you really envision yourself staying for the rest of your life, like we talked about, You talked about accessibility and—

Right. Let's just say— or let's just say it's a house that they could remain and they'd be fine, but actually it's not preferable because they actually would like to take some cash out of it.

Sure.

And they'd like to downsize because maybe it's too big. That's if they're already in an urban village, or if they're in a suburban area, of course they want to move into an urban village. So either scenario, it's worth $1 million. What do they do? They want to move to something— a little smaller, maybe something around $500,000 to $650,000, $500,000 to $600,000, let's just say, or $600,000-ish in an urban village area, kind of almost half of what they already own. So what are they— what's the situation? How does it work?

That 65-year-old, right, purchasing a new property at $600,000, of course you can sell your house at $1 million and buy a $600,000 home free and clear as they have now, but why would you want to tie up all of your cash into equity? At that point in your retirement. A lot of people want to keep their liquidity. On a reverse mortgage for home purchase, that same customer is only required at that age to put approximately 47% of a down payment. So on a $600,000 house that they're buying, they bring in $287,000 and they have their new home mortgage payment-free, and they didn't have to pay $600,000 of their own cash for it. So they keep their funds in their retirements doing other things for them.

And they can also— their tax basis doesn't go up because they're 65 and they can transfer their tax basis.

Prop 90— I always have to give a disclaimer that I don't talk tax stuff.

Okay, yeah, yeah, we all— yeah, we have to— everybody talk to your accountant.

Yep, absolutely. And talk to your financial advisor. Reverse mortgages aren't for everybody.

Right.

But yeah, you know, there may be capital gains in a scenario that large. Right. There could be not. So you just gotta look at it. But yeah, and then you— it's all about, you know, keeping your liquidity because people are living longer. Retirement is tricky.

So they sell the house for $1 million. They— let's say, or let's say their net is around $1 million. Let's say they netted $1 million. Let's say it's worth a little bit more than $1 million with costs for sale. They've netted $1 million. And maybe their basis was, you know, for whatever reason, they're not paying taxes. They did improvements over the years. They could show those improvements, etc., etc. Now they are buying something that's $600,000, so they literally are only having to take a little bit less than $300,000 of that to purchase, and then the remainder is literally left for them to, to use. So they're basically spending $300,000, and now they don't have a mortgage because it's like, it's considered completely 100% Yeah, there's still a mortgage on the property.

So reverse— that's the mysterious thing to— all right, let's talk about reverse mortgages. Okay, now that's how the banks are in it at the end. They get interest on the loan that they lend. So in this case, it would be some type of a loan amount in the $300,000, low $300,000 range. Okay, and every month the bank is going to just charge their interest to that balance unless the borrower for some reason wants to make voluntarily voluntary repayments towards the interest or towards principal.

Why would someone do that? Why would someone make a voluntary repayment towards principal?

So some people— there's so many different situations for folks. Some people want to retain their equity for heirs, or they want to— they would still like to have some type of interest reduction.

So that really is a choice. That's a choice. It's not like you're locked out of that.

It's exactly that.

Oh wow, I didn't know that.

People think that, you know, you take a reverse mortgage and the bank is going to take your home. That's not the case. If you live in that home, 20, 30 years racking up interest month after month, year after year, you might run out of equity at some point in time. Did the loan serve its purpose? Did it help you during your retirement? Great. One thing about the program is that you're guaranteed to live in that house for the rest of your life as long as you're maintaining the taxes and the homeowner's insurance. That's it. You could even end up upside down when you pass away, and that debt does not transfer to your heirs or anything like that. Wow. Because these are non-recourse loans and they're federally insured by the government.

I want to talk a little bit— when we come back, I want to talk a little bit more about those two points, that it's a non-recourse loan and that it's insured by the federal government. I want to talk about that because these are very, very, very important points. So let's elaborate on that when we come back. We're with Cliff Auerswald, and by the way, his number is 800-565-1722 if you want to talk with him about a reverse mortgage.

Or you can go to purchasereverse.com.

Purchasereverse.com.

A lot of information we've put together on this Fantastic.

If you're drooling listening to this information, you're going to drool more if you stick with us. We're coming back soon. So, all right, we're talking about a couple things. These loans are federally insured. Why is that important?

Well, prior to the FHA, you know, getting involved, AARP lobbied Congress to get involved in this program because prior to 1989, banks were doing reverse mortgages, but they were doing it however they wanted to. There wasn't any regulation. In 1989, Ronald Reagan signed in the Home Equity Conversion Mortgage. It is a mortgage program like other FHA programs that you could buy a house with an FHA loan, and FHA also insures a program called the Home Equity Conversion Mortgage, the HECM. Remember we were talking about what the heck is that? Yeah, abbreviation is H-E-C-M, and in 2008, FHA started allowing it to buy a home for home purchase. And it really didn't take off right then and there. I think that we're just seeing this as real estate has been improving. There allows people with more options. People don't like to sell when, when values are so low. So we've seen an uptick in people relocating, buying. Like we talked about, I think we didn't even talk about that, buying up is part of that.

Yeah, you know, yeah, right. What about that? What, why are people— it's interesting, we always assume. And even in my announcing and talking about this reverse mortgage, I talk about downsizing, but the reality is that there are some people that actually want to upsize.

Yeah, people tend to categorize seniors as just some sort of downsizing, dying out type of generation.

God, it's so depressing. Listen, I'm 65 and I want to get a big house now, damn it.

Generation is so amazing and they're connected. I mean, they're the second largest group of social media users. They love to be connected. Doing things that some of my friends, you know, they're having more fun.

They're having— wait a second, hold on, you just said something.

What was that percentage again?

Wait a second, you just said that this group is the second largest group of social media users?

Absolutely. You can look that up statistically. They're the second largest because they love to be connected. The whole boomer generation is about that. And, you know, you're talking about 77-some-odd million people. Approaching retirement in the next, you know, now to 5, 10 years from now. And there's a lot of things we have to do to start catering to what their needs are. And I mean, real estate-wise, different types of more suitable mortgage programs. But yeah, the social media is absolutely— my grandmother is on social media and she is 80 years old and she's liking stuff on Facebook. It just cracks me up.

It's true. My stepmother, she used to make fun of my sister and I on Facebook, and now she uses it she's on it all day long, and because they have the time.

Yeah, and you get to see people that are out of state and, you know, that your extended family haven't seen forever. It's just, it's really neat. That's so cool.

I didn't realize that.

Going back to like purchasing up, there's the younger tail of baby boomers. I think that they're still spending money like, like they have. They haven't really slowed down. A lot of people like buying up or maybe energy-efficient, more energy-efficient homes, right? Newer homes that they don't have to maintain maintain as much. A lot of people have been living in their homes for 20 years. You can sell your older home and go buy something lower maintenance.

Although, haven't boomers' nest eggs shrunk dramatically in recent years?

I mean, they're having a lot of cases. Yes, in a lot of cases. We've had a few down, I'm sure, in the last couple of years, but they were hit hard.

They were hit hard, yeah.

That is actually when, at the peak of the reverse mortgage industry, was when their pensions and everything—

You talk to people, the baby boomers, most people are not, this generation is not necessarily ready for retirement. And often half of their assets are tied up in their homes.

Your home is your largest asset. Yeah, right. I mean, it really is.

Well, as a result of this, the majority—

If you can use your equity to further your retirement, great. I mean, you don't have to. Obviously, it's not a program that should be pushed. It should just be aware.

No, no, it should not be pushed. No program should be pushed. We need to, it's all about education, options, and then making choices. Which is not necessarily easy because change is scary. But guess what? It's the only thing that we can guarantee. So you either passively have, you know, changes occur and you passively experience them, or you actively say, you know what, here are the changes that are going on. I think I'm going to choose this now.

Well, also too, you know, you also have seniors or soon-to-be seniors. All of a sudden they have about on average $240,000 in savings, right, to retire with, right? So then all of a sudden you're talking about the cost of living and taking on a reverse mortgage goes against the grain. It goes against everything that they're taught is to pay off your mortgage and be more—

right?

So it's a big psychological change to actually acknowledge the fact that you may not have— $240,000 is not going to take care of you through an entire retirement. So what do you do? This is a really nice option actually for a lot of buyers who are downsizing. And so basically what's gonna happen to these small little urban areas like Kensington, Normal Heights, University Heights, places like that, it's gonna swap out. We're gonna have an older generation and then the younger generation will be moving out to the suburbs.

Yeah.

I think. So I think that's gonna be a new trend.

I think that's an inch— well, I don't know if the younger generation is gonna move out to the suburbs, but maybe.

Well, the homes are gonna become more expensive here because the desirability is gonna become higher, so.

So it'll be really cool to be like an older baby boomer in like an urban neighborhood and all like the young folks will come on in and party with us.

There's already, I mean, I've read studies in the past year that— that's a big desirable area. A lot of older Americans are moving into more urban areas right now.

Well, they have to. You know what? When I talk to folks that are buying, what they invariably say, if they are a little bit older— and I'm saying older, I mean like starting at around 50, sort of planning for the future— they talk about wanting to be— this is major— they want to be able to walk to a restaurant, a coffee shop, a store, be near the park, just sort of like be located in areas where they just don't have to drive a lot.

And be connected, like that social media thing we talked about.

Exactly, and be connected, but we're also, as, because I'm a baby boomer, we're also, we don't like to just be connected online. We like to be face-to-face, at least I do. And you know, there's a, oh, speaking of which, my wife's daughter, Rachel, girl who is in college right now and has gone to the East Coast is reporting at 18 years old, trying to meet people in Boston, and she's reporting that it's difficult because everybody in school in her age group in college, their heads are down in their devices, and there's very little connectivity face-to-face. It's very, very difficult. We don't have that. The baby boomers, we like social media, but we're so— we don't— we had the experience of face-to-face face interaction. And she said this to my wife, her mom. She said, "You know, I really envy your generation." Yeah. Isn't that interesting? So there's stuff going on there that's really interesting to talk about. So the baby— so we kind of have the best of both worlds. We're into the social media. We love connecting online, but we also have the blueprint of face-to-face interaction, which, guess what? You move to an urban neighborhood and you're connected with your neighbors, you can actually still do that with block parties and fun stuff. My open house parties. Hey, come on into my open house parties. That's where you get connected, and you really do. Listen, when we come back, we're going to talk more about the details of reverse mortgages and buying with a reverse mortgage. Cliff, thanks for being with us. Stay with us.

You bet I will.

Okay, this is Gail Feldman, Feldman Fridays. This is an interesting stat: 37% of baby boomers say that they do plan to move in retirement, and many of them have no intentions of downsizing. Okay, nearly half of those who say that they plan to move move, nearly half say that they want a bigger place and that they intend to spend more money on it. Okay, this is according to a survey of 4,000 baby boomer households. All right. And that said, the majority of boomers who say they want a bigger place literally have a net worth of $40,000 and were among the lowest income bracket surveyed. On the other hand, the majority of boomers who say they plan to move to a smaller home tended to be more affluent with a net worth of $322,000. Is that not interesting?

Mm-hmm.

What does that mean? Well, someone— someone shine the light on this. What psychology can explain this? If you don't have a high net worth, but you're moving, you plan on moving to an upsizing, and you can't really do it. Here you can upsize if you want to, but you plan on moving to downsizing. Why is that?

That other group needs to talk to their financial advisor and get in line with reality.

I think it's the difference between living in fantasy and reality. Those who have accomplished, who have gotten their big house and have gotten the material things kind of realize, you know, it's fine, but it's not necessarily what makes me happy. Having some extra cash.

The thing is that people have to consider the inflation and the cost of living is not and they stopped going. So yeah, people do— we see a lot of them for relocations too. I've moved people across states with the program. A lot of people— yeah, people get tired of the cold, want to come back to their hometown. I had one customer who was in Washington, and she probably wouldn't even have qualified for any other type of mortgage anyway because her credit was a little subpar. But since on a reverse mortgage you don't make any payments, You don't necessarily have to make any payments, that is.

You don't have to. You can, you don't have to. I love it that you have an option. You've got options. Exactly.

So yeah, we moved her from Washington to Laguna Niguel, Southern California, here down in OC. And she's back in her hometown where she grew up in. Otherwise, she could not afford it either.

She couldn't have afforded it otherwise without doing this program.

It was still a smaller condo. It was like $350,000, somewhere around there. But she only had around $200,000 from selling her current place. So we leveraged the reverse mortgage and she only had to put down, again, about 40%, 50%, 45% down, and she stayed liquid and she had extra money left over. That's awesome.

And she had extra money.

It was a total win on all sides. Everyone's got a different scenario that's going on or needs, and it's just our job to try to find a good fit for them. If it works, great. If not, then—

There's a lot of folks that I'm talking to that this would really fit.

If you guys want to reach Cliff.

Just give him a call at 800-565-1722. And what's the best website to go to?

I would like to say purchasereverse.com. We're online on a lot of places, but we dedicated a website just to the purchase product at purchasereverse.com.

Awesome. Thanks so much for being with us, Cliff, and I can't wait to see you again.

Thank you so much. I'm coming out soon, okay?

Okay. You're gonna come to my next open house party? You wouldn't miss it.

I'm actually gonna be in town, San Diego, on Wednesday. You are?— is that—

come by and see me. We'll be over at 2916 Managua. It's not going to be a party, but it is going to be just a, you know, general open house. You know, part— you're not going to come if it's not a party?

No, I said we'll make it a party. It's okay.

Okay, you're gonna make it.

All right, cool. Thank you so much for having me on. And thank you. Good to hear from you too, Elizabeth. You too.

All right, Cliff. Yes, she is. All right, we'll talk to you a little bit. Take care. So I love Cliff. He's such a cool guy.

Actually, you know what? That was actually really interesting. I really found that to be very educational. And, you know, also too, with reverse mortgages, the person that gets that mortgage actually will actually have a counseling session with someone to ask questions and be able to really make sure that they're making the right decision.

They do. Actually, that's required.

It is required.

It's required.

It's a really great program, and it's so perfect for so many of those folks that are retiring that don't have enough assets.

At least it's an option. At least it's something to consider.

Payment— I mean, living in your own home with just taking care of your taxes and insurance. Yeah, it does make sense.

It makes total sense.

Mm-hmm.

In my book, you look into what your options are, you make choices, but you look into what they are and you make the best choice possible.