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MortgageReal Estate

Hey homebuilders, you need to learn about this little-known reverse mortgage product

Here’s why the HECM for Purchase is crucial to tackling affordability problems for the 55+ market

The 55+ housing market is hot right now, with builders and developers reporting significant demand across the country.

But while the sector’s performance right now is solid, looming affordability concerns threaten to dampen its growth.

According to a recent report from the National Association of Home Builders, the 55+ Housing Market Index was up six points from the previous quarter as present sales, expected sales and prospective buyer traffic for single-family builds all posted gains.

While this is great news for builders in this market, there are obstacles on the horizon.

“Builders need to continue to manage rising construction costs to keep homes in 55+ communities at affordable price points,” said Chuck Ellison, chairman of NAHB's 55+ Housing Industry Council.

For those who want to remain competitive in this environment, a little-known reverse mortgage product could be the answer.

It’s called a Reverse for Purchase or, using the official product name Home Equity Conversion Mortgage, a HECM for Purchase.

It allows an individual 62 or older to purchase a primary residence and obtain a reverse mortgage in a single transaction. With one set of closing costs, they can purchase a new home without incurring a monthly mortgage payment.

The deal requires a significant down payment, often more than half the purchase price, and that equity is then used to generate the reverse mortgage.

Rob Cooper, national sales leader of strategic business development at Reverse Mortgage Funding, said builders who incorporate HECM for Purchase information into their marketing can realize a distinct advantage.

“Being able to acquire a new home – even possibly a nicer one – while still retaining a large portion of their retirement funds may be enough to help these buyers feel comfortable making this decision,” Cooper said. “Builders who are not aware of or educated on the program – and who don’t have financing resources that offer the program – could potentially be losing customers.”

Cooper said older consumers are becoming increasingly aware of this financing option, which allows them to purchase a house and leave some money in their pocket – ideal for older homebuyers with retirement to think about. In some cases, he said it can convince a buyer to spend more.

“Most builders initially think that the H4P is replacing a transaction that was already there, that the customer had already agreed to pay cash or finance the home with a forward mortgage. But that hasn’t proven to be the case, and the HECM for Purchase has shown to add incremental sales that otherwise would not have happened,” Cooper continued. “In speaking with builder partners, it is my understanding that many HECM for Purchase buyers are choosing a more expensive home and/or purchasing more upgrades.”

Cooper said every week his team hears from new builders who have embraced the HECM for Purchase and seen it translate into more home sales.

“Builders not introducing the HECM for Purchase option to those qualified home shoppers are losing home buyers,” he said.

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