A HAPPY TALE FOR MODERN TIMES
Paul Snowbird (74) and his 73 year old wife, Pauline, (not their real names) wish to buy a primary retirement residence in sunny Florida. They have decided to find a renter for their home up north until a suitable buyer comes along. They intend to pay cash for the Florida property in order to have no mortgage payments.
When considering their financial picture, Paul and Pauline, decided that the highest priced home they can reasonably afford (and live comfortably in retirement) is around $290,000.
Alice, a licensed Florida real-estate broker, goes through the area's MLS and finds a number of homes that she would like them to consider, all with asking prices under $310,000. Alice is a newly licensed realtor and happens to be unfamiliar with FHA/HUD'S HECM Purchase program. Paul and Pauline begin looking at Florida homes. Together with their realtor, they find one that fits their budget, although it lacks features that the couple had hoped to enjoy in their retirement years.
After discussing the matter, Paul and Pauline agree that they are prepared to make the sellers an initial offer of $280,000 for the property. However, before making an offer on the property, they happen to meet Sandi, a Florida realtor familiar with the HECM Purchase Program. Sandi immediately gives Sherri (our Reverse Mortgage Specialist) the birthdates of Paul and Pauline and the fact that this couple has earmarked $300,000 with which to buy a Florida retirement home to make their primary residence.
Sherri calculates the amount of the highest priced home that Paul and Pauline can purchase using the HECM Purchase Program and their $300,000. She tells Sandi that, based on their ages, Paul and Pauline can buy a home that sells for as much $650,000. Sandi finds several lovely homes in an area that appeals to Paul and Pauline, all with asking prices above $600,000.
Sandi, being a diligent professional, knows that she must look at the real-estate taxes and insurance expenses involved. On average, these annual expenses total around $1200 more than Paul and Pauline feel are within their yearly budget. Sandi then starts looking for homes in the $400,000 to $500,000 range for the couple. These properties happen to have annual upkeep costs within their budget. Because the HECM Purchase Program will provide Paul and Pauline around 60% of the purchase price, they will not need to use their entire $300,000 to purchase the home they decide upon.
Together with Sandi, they find a home which is listed for $455,000 and they make a purchase offer of $420,000, which the sellers accept. Paul and Pauline are ecstatic because the house has a nice swimming pool, a den, a huge garage, and is located not far from a beautiful beach. They look forward to years of a comfortable and happy lifestyle with no mortgage payments to reduce their monthly discretionary retirement incomes.
Sherri and Reverse Mortgage Sales handled all paperwork required for the HECM Purchase Program, coordinating with Sandi who arranged the real-estate closing.
In closing the transaction, Paul and Pauline needed to take from their retirement funds not the $300,000 they had earmarked for a Florida retirement home, but only around $156,000 in addition to their share of costs involved in closing the real-estate transaction. All but a small percentage of costs involved in the HECM were wrapped into the HECM (became a part of the lien against the property only) to be repaid from the Snowbird's estate at the second death, or when the house is no longer the primary residence of either of them. The buyers saved more than enough to take Sandi, Sherri, and their companions out for a steak dinner. They also retained more than sufficient funds to pay for the world cruise that they had looked forward to but decided they could not afford and still buy a Florida residence, especially since current market conditions made it difficult for them to sell their property up north.
Not only did Sandi provide first-class service to Paul and Pauline, but she earned (and deserved) a greater commission than Alice had hoped for in attempting to sell them a less desirable and less expensive house.
And they all lived happily ever after.
EPILOGUE -
Critics of the above scenario may point out that if Pauline lives to a ripe old age (85-100, probably surviving her husband by 15-25 years) there may be little or no equity remaining in the property. This means that funds (in the form of residential property equity) possibly available in the distant future spendable on doctors, home-care, nursing-homes, hospitals, etc. were utilized by Pauline (and her husband while they were together) for living well through years of healthy retirement. The buyers fully realized that this scenario would result in their leaving a dimished estate (or what remained of it after staggering end-of-life expenses) to heirs or beneficiaries.
There are persons in positions of governmental power who today propose that they ought to decide on how retired Americans allocate their own assets. We do not agree with this suggestion. We do, however, whole-heartedly believe that a primary function of government, in addition to national defense, should be to protect citizens (aging seniors included) against force and against fraud.
Requiring that full and accurate information involving any financial agreement be provided, and prosecuting and severely punishing malfactors is included in the latter. These matters should be handled by competent and accessible legal resources.
