Purchase Your Next Home with a Reverse Mortgage, with Shanne Sleder of RWM Home Loans

0:02 One of the most powerful uses of a reverse mortgage is for purchases whether you're purchasing property or your final property to live in. And I'm really excited to have today an expert in using reverse mortgages to prepare for as well as to buy your next home, Shanne Sleder. He is the reverse mortgage expert. SanDiegoMortgageNews.net is the website. Shanne, thank you for joining us today. You're welcome. Thanks for having me, Bill.

0:32 So, let's talk about reverse mortgages for purchase because many people think about them as somebody's in a house, they're elderly, they can't afford like an they need it need it, but I have customers who are selling their house here in California. They have a lot of equity and they're buying for cash and I talked to one in Nashville today, and Florida. Why is reverse mortgage a smart option for those people to at least consider the tool?

0:52 Sure. So, one of the things that we always want to look at, especially for those going into retirement, is you know, liquidity, safety, and return. How much money do they need for their retirement needs? Do they have enough? I think nowadays we're finding out people who thought they had enough end up not having enough with how expenses are going up and increasing. And so, a lot of times it just comes down to having liquidity and that money available when you need it. And so the nice thing about a reverse purchase is it allows seniors to what I call right size into that right type of property, but be able to do it where they're not having to take 100% of their proceeds from their sale and bury that in the house. Once that money's in the house, it's really difficult to get back. You either have to sell the house, you have to do a cash out refinance to take out that money at a higher interest rate and with payments that most seniors can't afford. And so by utilizing a reverse mortgage initially, it's going to allow the senior to keep a chunk of that money from their other property that they've now unlocked, and it's gonna allow him to keep it liquid, to have it invested, maybe get a nice return on it, and not have to worry about tapping into the equity later on.

2:06 So, I know you have a flyer on the subject, which I think is helpful for people who might be interested in learning more. Purchase the home of your dreams. And the idea is that you can buy it maybe before you sold your house. Maybe I guess you could rent out your house and then use the reverse mortgage on your purchase, putting the equity to use that way. The other is you can pull all the money out and save money. So talk about the most common choice is e I think cash or a reverse mortgage or reverse mortgage or forward traditional mortgage. What are the advantages of the reverse mortgage versus the traditional mortgage? Right? You have to qualify for the per for conventional mortgage. You need to qualify for reverse mortgage.

2:44 Yeah. So, the reverse mortgage because it is geared for seniors, a lot of times people are on fixed income, the qualifying is a lot easier. There is what's called a financial assessment that's required, but really all we're looking at for that is to make sure that taxes have been paid on time, insurance, and that there's enough money to cover the home expense and a little bit of residual income. It's not as complicated as most debt to income scenarios where we're having to qualify seniors and they just don't have enough income. So, that side of it easier. It does give you a lot more flexibility to be able to use a reverse mortgage to purchase. You still accomplish the same goal. I think the main thing when I'm talking to seniors is that they don't want to have a mortgage payment. And the reason why they think they have to pay cash is the only way to get around having a mortgage payment is by paying cash. And the great thing about doing a reverse mortgage is it helps them accomplish two goals. It helps them to not have a mortgage payment because when they do the reverse mortgage, no interest, no payments are due. The interest is just accumulating on the property over time. You still have to pay your property taxes. You still have to pay your insurance, but it allows them to accomplish the goal of not having a mortgage, but at the same time allows them to accomplish the goal of having that extra money liquid. Or like you said, maybe they keep their current property that they're living in, turn it into a rental property, and as long as they've got additional money that they can put down to cover the down payment on a new home, now they buy the new home with a reverse mortgage, and now they've got the cash flow coming in as income from the rental property that they didn't have before. So there's lots of different ways that we can structure this to really look at what is the best option for the senior.

4:25 And I think the key is that it's not necessarily the right tool every time. It's a tool in the toolbox that should be evaluated given their individual circumstances. So I know one of the issues on the purchase is you typically need a larger down payment on a reverse mortgage than a conventional, right? Sometimes people put a larger down payment because they have to qualify in terms of their income or the type of property, but most commonly you can get in, you know, a conventional loan 20% down. With a reverse mortgage, you're probably looking the opposite. You're probably looking at a much lower loan to value, I think. Right. So, it's more of an alternative to a cash purchase than it is to a finance purchase.

5:03 Correct. Again, most of the time people that age are selling the property, so they've got a good amount of equity already to put towards that next home. But yes, it's all dependent on your age and your home value and the current interest rates. In the higher rate environment that we are in right now, you're probably going to get on the maximum side is probably about 45% from the reverse mortgage. You're going to have to come in with about 55 on your own. So, it could be, you know, if you're younger, if you're in your early 60s, you might be coming in with 70% of the down payment. But it's still a lot better to keep 30% of the funds from your previous sale liquid than to have to put it all into that property.

5:44 Or the other way around, meaning I'm one who's in the early 60s, so I was looking at a cash purchase and we didn't want to sell our house here. Don't get all the details. We're really not going to do it. It's just my fantasy of moving to Florida. I said, "Well, I don't sell my house. I own liquidate stocks. What could I afford? Why about $500 or $600,000 cash? Maybe I could buy a two-bedroom condo, establish residency there for tax reasons, and pay cash. And I thought, well, you don't get much that's nice for that. But with a reverse mortgage, I could probably get about, you know, a $300,000 reverse and a $500,000 down payment. And now I'm looking at $800,000 property. What's a little nicer property that makes that a possibility where before it isn't really even a possibility?

6:23 Correct. That's one of the best ways. A lot of times, you know, people feel like they're stuck in what they can actually afford when they go to make that move, whether they're moving out of state or even to a smaller home within the area they already are living. And they feel like, okay, I'm getting, you know, $800,000 out of the sale of my property. I can only afford an $800,000 property. And maybe that's a small condo. Maybe it's a not in the greatest neighborhood. Maybe it's not as close to their family as they would like it to be. And if they team that up with a reverse mortgage now, it maybe puts them up to the $1.1 $1.2 million price point and maybe they're able to get that nicer property. Maybe they're able to get that home there more of that dream home that they want to have that they weren't able to afford previously. So there's a lot of different flexibility that this provides that you wouldn't have otherwise. So another advantage of the reverse mortgage is it creates some additional flexibility going forward. Meaning if you chose to pay down or even if you don't choose to pay down there's a there's an appreciation that gets created in the in the property that translates to perhaps borrowing capability down the road. Talk a little bit about how the unused portion if you pay down the loan balance and or the appreciation works as far as a line of credit going forward.

7:43 Right. So, if the reverse mortgage is structured as a adjustable rate reverse mortgage going in, there is a line of credit option that's tied to that. And what happens is if the client does decide that they want to make payments towards the reverse mortgage or pay down the interest just so the reverse mortgage doesn't grow as much, anything that you put towards that balance to keep the interest down automatically goes to your line of credit so that you can borrow it again in the future if you ever needed it. So it keeps that liquidity factor there, which is great. It keeps the expense down, but it also keeps it where you can borrow it again. And then there's a growth rate tied to the reverse mortgage where the line of credit will grow every year. Whatever is available in the line of credit will grow the same by the same rate that the reverse mortgage is gaining interest on it. And that will allow you to borrow more money down the road. So I like to explain it like a credit card. You know, if they give you a $5,000 borrowing capacity and you do a great job, you make those payments, they come back to you in a couple years and say, "We're going to increase that to $10,000." It's the same thing on a reverse line of credit. It's not interest that you're gaining. You're not making interest off it, but they're allowing you to borrow more against the future value of the property.

9:00 And the advantages there are that is the interest at least is deductible in many cases because it's home interest on your house or could be. Talk to your tax professional and also something you can use flexibly, meaning maybe you plan to pay for something, a vacation or kids school, and you know, your business deal hasn't closed, your real estate hasn't closed on time. You can write the check and access the line and then pay it back right away and there's no prepayment penalty versus going through getting a line of credit or a second trust deed with closing costs becomes a different transaction you may or may not get.

9:35 Correct. I what I want what I always say is that the reverse mortgage has so many I feel like endless possibilities on how it can be structured and ways that you can use it creatively and strategically to improve your retirement, your cash flow, your asset preservation. I mean, there's so many different things, especially when you're working with a financial advisor together and you're looking at this that can allow you to be in a better position. And a lot of times people will say, "Well, I don't need to do a reverse mortgage. I can go pay cash for this property." Why would I ever do a reverse mortgage? And you know, some of the wealthiest people in the world, they have learned to leverage things, not to pay cash for stuff. Use other people's money, free it up, allow you to now use that money to do other things that you need to do. And that's the key to all of this is how can we leverage the real estate? How can we free up liquidity?

10:28 Yeah. Well, and again, it's about you finding the right story for you. It's not about the product. It's really about how this product can or can't serve you. And that's why you want to work with an adviser. A whole another scenario of options in addition to purchase is as a second loan. There are people who have tremendous have fantastic first mortgages, you know, 3% fixed rate, 3 $400,000 balance, and the house is exploded in value. It's worth $2 million. How they unlock the equity? Well, they can sell the house. They can qualify or try to qualify for a new mortgage, but they'll lose the underlying. They can qualify for a second. Harder to get than it used to be and very expensive can be and hard to qualify for particularly if you're older maybe retired and your income is tax for best. Second is another option. Talk a little bit about the advantages of a reverse second how that loan can provide a chunk of money that you can use and create some flexibility there as well.

11:23 Yeah, so this is a product. It's somewhat new. It's only been around for a couple of years. And what it allows you to do is to keep that if you've got that first mortgage that's a lower balance but has a nice low interest rate on it. You're comfortable making that payment, but you do need access to additional funds to pay off credit card debt, to remodel a home, to, you know, do whatever it may be. You may even want to be able to give some money to your kids or grandkids for their schooling or buy their first home. It allows you to access that money, not have a payment on that second, a little easier qualifying than a traditional HELOC. And so, you know, what I've seen, I had a client who had a VA mortgage, two and a quarter% interest rate, you know, was comfortable making that payment. He's like, I don't want to get rid of my two and a quarter to have a 6 and a half% rate on a reverse mortgage, but he needed to pay off some credit card debt. He needed to do some defer, you know, work on some deferred maintenance around the house, and he just wasn't going to be able to qualify for any other type of mortgage, right? And so we came in and we got him a $200,000 line of credit reverse mortgage that he could then take pay off about $50,000 of credit card debt, do the work around the house, do what he needed to do, and not have a payment on it. So it ended up being a great solution for him to be able to keep that light, you know, nice low interest rate on his first mortgage, but be able to still access the equity he had in the house.

12:54 I think one of the keys to this product is the quality of the advice you get whether it be as part of a package with your you know team you know wealth manager, accountant, attorney and reverse mortgage professional or just a reverse mortgage professional but getting the right advice for you is so important in that. So talk a little bit about how you are available and what kind of service you offer people who have questions because we really talked about some pretty complicated questions but nobody's scenario fits any of those. They're all a little different, right?

13:24 Right. Right. Yes. So, I've been in the mortgage industry for 24 years. I've been doing reverse mortgages for 20. I have my CRMP designation, which as you know is a very select few in the country that have that. A lot of extra testing and knowledge that goes into that. And really what we try to do is sit down with a client, find out what are their needs, what is it that they're truly trying to accomplish, what are their goals, shortterm, long-term. We want to make sure that whatever solution we give them now doesn't just solve their issue for today, but actually solves it for five, 10 years down the road and doesn't put them into a worse situation. So, we have that approach of having a consultation with clients, really learning what their needs are, finding out their current situation, bringing family in if we need to, kids. That's important to make sure the kids are on board, that they're educated on the way reverse mortgage works so that they're not surprised when mom and dad pass away and all of a sudden there's a reverse mortgage on the property and they knew nothing about it. And then obviously bringing in the other advisors. So I love coordinating and working with the tax professional, the financial advisor, the estate attorney to make sure that any of the options we're looking at fit into that long-term plan. And it's just taking the time to ask the questions, either meet with them in person or over Zoom, and go through all of the details together.

14:49 You know, one of the challenges of this product, as you mentioned about, you know, consulting with family members, other advisors is, and I'm a real estate broker. The reason I started this podcast a few months ago was I realized I knew nothing about this very powerful tool. And the little bit I knew did know was wrong and old because the information was based on my experience personally doing loans as an originator, with what I would call reverse mortgage you know 1.0 I know when the product first came out and while I was honest and worked hard, there was a lot of dishonest loans done that it was ripe for abuse and the pro product really got rewritten and redone into what I call now 2.0, which is a much more structured, much more regulated consulting process. So, talk a little bit about before anybody, you know, if I called you up today and said, Shanne, I want to get a reverse mortgage. I'm ready to sign on the dotted line. I'm ready to do that. I can't do that because I really need to go through some education that has to be documented. Talk a little bit about the process to verify that the consumer is being educated and that they're actually going to know the basics when they're before they move forward.

15:59 Right. So, there are some requirements that are industrywide, right? There's a counseling session that's required for every borrower to go through. It's a usually an hour and a half call with a third party counseling company that makes sure that the client understands the way the reverse mortgage works. They'll go over their income, their assets, their debts, all of that to make sure that the client really understands and isn't getting into something that they don't know what they're getting involved in, right? But before that even, you know, my what I require is to have that consultation with the client to go over all of the information by de, you know, in detail with a client, if face to face if at all possible. A lot of times people say, "Well, can you just email me this?" And yeah, I hate doing that because there's something they're going to miss. There's something they're not going to understand. I want to be able to make sure that they fully understand, have all their questions answered, know what they're getting into before they go into that counseling session so that they're aware and can answer the questions that they need to. But that's part of the process. They've got to go through that counseling first before we can order an appraisal, before we can do anything that costs any money. And then after that, you know, they do go into the underwriting side of things, but part of that process is doing the financial assessment as well to make sure that the client can actually afford to pay their taxes and their insurance and they're not going to be in a situation where they get a reverse mortgage and then a year later they're going into foreclosure because they couldn't afford to pay their taxes on the property.

17:29 And I think that's the important thing is the disclosure up front is verified in order for you to get the loan done. That didn't used to be the case. And then there's the loan to values on these loans are tighter than they used to be. Used to be a borrow up to 80% of the value of the property. Now it's going to vary from 30 to 45 I think. What's I don't know what the maximum is but it's 50 or so at the most I think depending on how

17:51 And the one of the biggest impacts are the interest rates on that. So when the interest rates are higher that loan value is going to come down lower. If the rates get down back to the, you know, three or 4% range, then the amount they can borrow goes up a little bit more, right? Because the growth won't be as sustained on that.

18:08 But it's not 80%. That's what it's not 80%. I think the highest that we ever saw was, you know, a 90 year old, you could get like 55%. So, you're going to usually be at that 50 or less because they do want to make sure the goal of these products is not to use all of the equity in the property. They want there to be equity remaining after the fact so that when the client does need to sell the home or passes away and the heirs get it, there's still some equity available. But there's the safety that if that doesn't happen and if the market does crash and if home values go down, these are all non-recourse loans, meaning that they can never owe more than what the house is worth. That's what the mortgage insurance is there for. And so there's those protections that happen in those very unique situations if that were to occur.

18:57 Yeah. In the 1.0 version, there were people who were upside down and they had to sell the property and they were short and had to figure out what to do with it. Now you mentioned it's non-recourse. Now it's a non-recourse built into the servicing at least on the FHA ones which are the vast majority is a short sale process kind of pre-approved process because the lender doesn't want to foreclose. Because they really want the family to get out of the property and kind of incentivize them a little bit to get a Realtor® to help them and get the closing costs done and get the thing done in an orderly manner. And that's a big difference compared to how it was in 1.0. Now, I will say there is unfortunately very common reverse mortgages go into foreclosure. And the reason why is if both borrowers pass or there's only one who gets it and they pass, the family has plenty of time to resolve matters. But often times, you know, denial is not just a river in Egypt. People don't want to deal with the re the reality and the lender at some point's going to foreclose and try to get the property back. But the reality is that should never happen. And that's why I did this podcast because I got more and more customers who are calling me saying, "Hey, mom and dad, you know, passed and the property was on a reverse mortgage and my brother's been living there and he never told us he was getting statements. He never told us he was going to foreclosure and now we're faced with, you know, third year 90 days." And I can help with that. So, anybody who has who comes with circumstances where if an origin you have that I work with National Probate Services and we'll jump in and help move things forward for the family to protect the equity for the heirs. But that's still a problem. So let's talk a little bit about I know that part of the reverse mortgage also they added the requirement not just the suggestion but the requirement that the borrower recertify occupancy every year to verify they're living there to verify they're alive they're responsible and I think that creates an opportunity for an originator to be in touch with their customer to say hey is this still the right loan for you maybe we should refinance maybe we should get a bigger reverse maybe we should get a second maybe we should sell the house it puts you in position to have those conversations Does that does that

20:59 Actually happen? Do customers call you as a result of those or should more be calling? I do get I do get people calling me. With regards that I mean one of the things that I offer all my clients is that I do I try to do an annual mortgage review with them mortgage equity property review to see if that's still the right thing and if the different strategies need to happen. Not all originators do that but I try to do that to follow up with my client. And so many of my clients will turn to me when they first have a question. Or they're getting inundated with all these phone calls from other reverse companies that, you know, six months after they do a reverse mortgage, they're being called to say, "You should do a new one." And I'm like, "There's no benefit for you to doing a new one right now. It doesn't make sense for you to be doing that." But, I think the big thing, like we were saying earlier, is education. If everybody knows what their role is, if they know if the U client knows that they've got to notify and let people know you're living there, they've got to maintain the house, they got to pay their taxes and insurance going in, that's going to be a better solution for them. If the kids know what their role is, that they've got 30 days after mom and dad pass away to make their intention known on whether they're going to keep the property or sell the property. And then they've got that, you know, six-month period to actually do what they need to do. That's gonna help.

22:21 Most of the issues that you talked about with foreclosure is because somebody wasn't aware of what needed to be done at that point in time. And so the more we can educate people on the front end and include them in the process, the smoother it's going to go for everyone.

22:35 And that's why we have this podcast. You know, again, as a real estate professional, I don't do these loans. I'm not getting paid by you to advertise this, but I do believe that if we educate customers, it becomes another tool that people can use to protect their equity to buy houses, to sell houses. I think in the long way, it all works out for everybody. So, Shanne, somebody gets a hold of you. I put your contact information up. Your website is SanDiegoMortgageNews.net. Is that the best way to get a hold of you? And I think your phone number we have on the screen as well. Are those the best ways to get a hold of you? Yes, the website has a lot of information on there about everything that I do. It's got information about reverse mortgages. We've got some great, you know, videos and content on there so that people can look at it. Phone number, email, any of those are great. That's my cell number that's on the screen right now. So, call or text and I'll make sure to get back in touch with you.

23:27 Well, thanks so much for being on our call today. I really appreciate you. I can say I've always enjoyed talking to you. I feel like I learn a lot about the product every time and I think that's the key to making this work if you understand your options and you can work with a professional. There's a chance here to leverage your equity, leverage your resources and ultimately build your wealth and or save money. So I just want to thank you so much for your time today. Really appreciate it.

23:49 Thank you so much, Bill. And for the rest of you, this is Reverse Mortgage Podcast. We get together every week. We interview top producers in the industry, usually certified mortgage professionals as well as managers as well as vendors, on how to use this product. I really feel like if you're a customer, there's a chance for you to learn how to use this to protect your wealth, protect your income, protect your assets, and if you're originator, we want to raise professional standards, and have the best people provide the best service for our customers. If I can help, I'm Bill Gross Probate on social media. And as always, make today your best day