By Mark Schumacher, NMLS ID 519754, Mutual of Omaha Mortgage, Inc., NMLSID 1025894
When I first began working in real estate as a mortgage loan officer 20 years ago I tried predicting what interest rates were going to do. Given the significance of interest rates on my work I found it fun and interesting and challenging. I did this for a few years until I got tired of having a .000 batting average. I now have a prepared answer for anyone that asks me what I think interest rates are going to do. “They’re going to go up, then down, then up, then down, but not necessarily in that order.”
A clever saying in real estate is “marry the house, date the rate.” This saying serves as a reminder to the home-shopping consumer that (assuming you can afford it) if you find the house you want, don’t let interest rates deter you from buying it. If rates are high now, they won’t be forever. Refinance your mortgage later when it’s advantageous to do so. We’ve done that ourselves, even though rates when we purchased weren’t as high as they are as of this writing, 12/14/2023. Unfortunately, this doesn’t resolve the affordability challenge faced by so many home-shoppers today. If the purchase isn’t affordable, then we can feel stuck where we’re at.
To get around that challenge might require being a cash buyer. But at today’s price points that’s a whole lotta cash. Even if you have a whole lotta cash to buy the house with, wouldn’t it be nice to hang on to some of that cash for living purposes? Survey says…”YES!” Running out of cash in retirement still remains very high on the “places we don’t want to go to” destination list.
The Lifestyle Home Loan was created to help address this. It helps home buyers avoid a monthly mortgage payment even though they don’t pay 100% cash for their home. So even though interest rates are up, that doesn’t affect their monthly mortgage payment obligation…which is zero.
But hang on, we’re not home-free yet. There’s still the issue of down payment amount. Some home buyers fall outside this range but from my experience most that have applied for this program have to bring a minimum down payment of 50% to 70% of the purchase price.
Let’s put some numbers to this. If a qualified home buyer has a minimum down payment requirement of 70% of the purchase price and they have $350,000 cash to put down, they can buy a $500,000 home and they don’t have to make monthly mortgage payments going forward. Their down payment can’t be from borrowed funds. It often comes from the sale of their departure home but other asset sources are allowed.
In this example the remaining 30% is paid by the Lifestyle Home Loan plus the costs associated with setting it up, and this program – because the down payment amount is as high as it is – doesn’t require the borrower to make monthly mortgage payments against the loan. Instead they can choose to have the interest added to the loan balance for payback later.
And now the Lifestyle Home Loan fine print. MINIMUM BORROWER AGE IS 62. TERMS AND CONDITIONS APPLY. CREDIT, INCOME, AND PROPERTY CHARGE PAYMENT HISTORY MATTER. THE 70% DOWN PAYMENT REQUIREMENT IN THE EXAMPLE ABOVE IS JUST AN EXAMPLE. YOURS MIGHT BE DIFFERENT; PROBABLY BETTER, BUT POSSIBLY NOT.
By the way, Lifestyle Home Loan participants are still the owner of their home. As owners they have the same obligations other homeowners’ have that are conditions of the loan: paying property taxes, homeowner’s insurance, association fees if you live in one, and the upkeep of the home. Primary residences only.
This is a loan which will eventually be paid back. Just because it doesn’t require that repayment be done every month for the rest of your life doesn’t mean it’s free or at no cost. You know the saying…there’s No Free Rides.
Other options come with the program too that create a unique diversification tool for people looking for a safe yet growing source of cash-flow. I hope that by the time we get there we are using our money to make memories rather than mortgage payments.