How often have you heard your friends and neighbors say they’d like to move closer to their grandchildren or that the time has come to pursue their lifelong dream of starting the business they’ve always envisioned? Or perhaps other financial and lifestyle transitions have people considering a move to a warmer climate.
Those scenarios, and many others, are prevalent, especially among adults aged 55 and older, who represent more than 20% of the U.S. population. For most senior adults, the homes that they live in are their largest asset and account for most of their net worth. To address the special concerns and often quite specific real estate goals of this population, the National Association of Realtors has developed the Seniors Real Estate Specialist (SRES®) Designation.
The SRES course examines key differences in housing options, from age-restricted communities to age-in-place design to assisted living; applications of the Housing for Older Persons Act (HOPA); the ins and outs of reverse mortgages; the use of pensions, 401k accounts, and IRAs in real estate transactions; and suggestions for the realtor in how to develop a team of senior specialists, including estate planners, reverse mortgage lenders, clutter removal and staging specialists, and more.
At the recent National Association of REALTORS conference in San Diego, it was announced that there are currently 16,000 SRES trained in the United States. A significant number are located in the west, including 504 in the San Francisco area alone. By comparison, there are 50 SRES within a 25 mile radius of Buffalo.
Whether you’re relocating, refinancing, or selling the family home, SRES specialists are prepared to offer specialized expertise needed to help examine the array of options that confront seniors when facing these life changing decisions.
The Buffalo NIagara Association of Realtors reported a 16 percent increase in closed sales for November 2009 when compared to November 2008. The original deadline for expiration of the first time buyer credit was November 30, 2009 and this caused a tremendous flurry of activity between September 15 and October 15 as buyers who perhaps had been “on the fence” before jumped off in significant numbers to stake their claim to the $8000 credit. This 4 week period was somewhat of an artificial deadline as it takes anywhere from 6 to 10 weeks to typically close a real estate transaction in Western New York. It should be noted that this credit was subsequently extended by the federal government in late November.
Most of your full time real estate people will report that once the “window” closed in mid-October, phones went dead with minimal new business coming in on the heels of the stimulus fired buying activity. It’s my opinion that December and January closed sales numbers will lag behind the prior year as many potential purchasers seemed to fast-forward themselves into a contract because it seemed as if the extension was over for good. Since the announcement of the extension of the credit, many real estate are reporting a renewal of new inquiries and people coming back in to the market despite the usual December slow down of activity. There are no official statistics to bear out this point just testimony from several of the old warhorses I rub elbows with day in and day out. The current tax credit requires an individual to enter into a contract no later then April 30, 2010 and to close by June 30, 2010 in order to claim the credit. I am expecting a strong influx of new clientele into the marketplace after the first of the year.
FHA mortgage lending may tighten up in 2010 if sponsoring lawmakers have their way. It’s expected that the Obama administration will resist the effort underway by a group of lawmakers in Congress to make FHA lending requirements more stringent. FHA is a government-backed real estate financing program that is often associated with first time buyers but has gained popularity recently with repeat buyers due to certain program features such as low downpayment and the component that allows the borrower to finance a significant portion of their closing costs.
A major change under consideration would be an increase in the down payment requirement for this program from 3.5% to 5%. In addition to raising the FICO credit score required for approval to 620 from 610, the proposal also calls for a reduction in the maximum seller concession from 6% to 3%. Seller concession is a commonly used method to allow a home buyer to finance in a portion of their closing costs. The concession amount is added in to the contract on top of the agreed upon purchase price. The seller still receives the agreed upon amount and the buyer receives a higher mortgage but does not have to come up with as much cash to close.
It’s expected that these changes may be in place as early as the beginning of 2010. It’s wait and see right now to see if this makes it through Congress and if it is approved by the administration.
Reverse mortgages have become a financial tool often mentioned, but rarely explained in detail. Individuals consider this type of financing for a variety of reasons, including making modifications or improvements to their home and generating improved cash flow for day-to-day expenses. This financing program allows a borrower to take a first mortgage against their property with proceeds of the loan delivered as regular payments, a lump sum or a combination of both. For some, this is the best way to continue to own their home, while for others; another option may make more sense.
A borrower must be 62 years or older and must be the owner occupant of a 1-4 family dwelling or approved condominium. There is no credit examination; however, the individual must take part in a government approved financial counseling session. The maximum amount of the reverse mortgage will be 80% appraised value minus the current mortgage, if any. Customary mortgage origination costs such as mortgage tax, legal and document fees are charged along with additional fees in the neighborhood of 4% of the mortgage amount. In addition, a service fee of $25 may be added monthly to the balance.
We normally think of paying down a loan amount over a period of time3;.the opposite occurs here; the size of the debt grows with interest over a period of time. The full amount of the outstanding balance is due on sale, upon death of the borrower or within 12 months of the borrower´s moving date to another residence.
If the sale price exceeds the amount due, as you would expect, the borrower gets to keep the proceeds. In the event the amount due of the reverse mortgage exceeds the sale price, a special procedure called a “short sale” is required. This can occur if, for instance, the value of the real estate has dropped since the reverse mortgage was started. A short sale procedure is governed by federal regulations and includes a new appraisal and activation of a claim against the shortfall insurance paid for by all reverse mortgage borrowers when they first take out their loans. There is no further action against the borrower or their estate.
Only the individual can determine if this financing tool makes sense to them. Key questions to explore with a trusted advisor are: How much cash could you realize if you sell and what is a conservative estimate of what you could safely earn on that amount? What would it cost to buy or rent a different place to live that may more closely meet your needs? Are there modifications that you can make to your existing dwelling that would increase your ease of living there for an indefinite period of time?
The most important thing to do before doing anything is in depth examination of your situation with knowledgeable people who have your best interest as their priority.