Meet the needs of baby boomers with HECM loans
By John Kamin
Builder Partnerships Senior Consultant
If an underserved market existed that allowed you to capture additional sales at higher prices and higher margins, you would probably want to know more, wouldn’t you? We are always striving to attract more prospects, increase our capture rate, and maximize profits.
No, we are not talking about how to reach millennials, which seems to be everyone’s target. Another market will be expanding for the next decade, is more affluent, and wants to move to new homes. Remember the baby boomers? This group is actually growing as they reach age 62, which is significant. They typically have paid off their mortgage or nearly so, and live in a home that no longer suits their lifestyle. Their home may be too large, require too much maintenance, or be too far from the grandkids.
They would consider moving but are concerned about several things:
• Homes today cost much more than they paid for their current home and they may not have enough money to pay cash.
• They do not want any mortgage payments.
• They want a “right-sized” home with the owner’s suite on the main level, or a ranch.
• If they need a mortgage, they are concerned that they may not qualify since they want to retire.
You may not be familiar with the home equity conversion mortgage, or HECM, loan, but it can be a perfect solution for these baby boomers. An FHA mortgage that was initiated in 2009 to address these concerns, the HECM is basically a reverse mortgage that can be used to purchase a new home. It allows a buyer to purchase a home with a little more than 50 percent down, and requires no mortgage payments!
It gets even better. There are no credit score requirements, no employment is necessary, and it only requires enough residual income to pay for taxes, insurance, and maintenance. The down payment is the equity to make the monthly payments. Even if the owner lives to be 110 years old, there is no personal liability if the mortgage becomes upside down. It’s a great plan for baby boomers.
This is a great opportunity for you to reach a market that can afford to get exactly the home they want (at your full sales price) and they only pay 50 cents on the dollar. Talk about leverage! Here’s an example: The Jones family wants to purchase your home and they want no mortgage payments, but they have only $160,000 in equity in their current home. You can show them how to buy your $320,000 home and still have no mortgage payments!
By now, you can probably see the potential. These buyers want to get the home they have always wanted, with all the amenities. They can add any option or upgrade and only pay 50 percent for them. This is especially effective in social media circles. Imagine the impact of a message that offers a new home at 50 percent of retail, no mortgage payments, and no personal liability.
A builder in North Carolina has increased sales by 30 percent after offering this program. He has implemented a workshop program that reaches these potential buyers and explains the benefits in an instructive manner, and does not use it as a selling exercise. The referrals generated are high-conversion, low-cost sales.
The HECM is a great product, but it’s also complicated; to use it effectively, your sales team needs to fully understand how this program works. Not all mortgage lenders are familiar with or offer the HECM product, so you may need to partner with a lender that specializes in this program. We can help facilitate the training, help with product recommendations, or put you in touch with a lender. Send me an email for more information.