THE "SKINNY" ON REVERSE MORTGAGES

Published On: August 4, 2014


Reverse mortgages are great tools for the buyer or homeowner who has certain situations currently in their lives.  It is like any other mortgage in that the home remains in the name of the homeowner and goes to the heirs.  All homes are owned jointly with your lender until it is paid off, so to speak, by virtue of the mortgage or lein.  It is the same with a reverse mortgage.  The biggest caviet is that if one of the spouces are not 62+, they cannot be on the loan, and should the older spouse pass, the loan has to be refinanced into a regular loan or the home sold.  

But it is perfect for those who want to stay in their home, sometimes it is hard if not impossible to find one that meets all your needs for the same price.  It frees up money that is being held hostage in the home, to be used for living expenses, medical, repairs, insurance & taxes etc.  The home owner just needs to keep the property taxes and homeowner's insurance paid.  The unpaid mortgage does increase by the interest not being paid, but with a 50% ratio the value of the property usually goes up faster than the loan increases (unless we go through a mortgage bubble like we had in the mid 2000's.  That is why long term is very important.    

1.  You must be 62 years old or older

2.  You must be planning to live in the home long term.

3.  Owner occupied only (not vacation homes or rental etc.)What are the Qualifications to obtain a Reverse Mortgage?

Eligibility Requirements

  • The youngest person on the mortgage must be 62 years or older
  • The home must be a primary residence occupied within 60 days of loan closing
  • The home must be a single family home or an FHA approved condo
  • Down payment is a complicatede calculation the lender makes which takes into consideration, price of the home, age of the borrower.
  • Borrower must complete a HUD approved counseling session 
Here are a couple of helpful links:  http://reversemortgageguides.org/reverse-mortgage/hecm-for-purchase/ http://4reversemortgagehelp.com/purchasing-a-home-with-a-reverse-mortgage/2 http://rmc.ibisreverse.com/rmc_pages/rmc_hfhp/rmc_hfhp_2.aspx http://www.reversemortgagestore.com/hecm_for_purchase_guidelines.html

Purchasing a Home with a Reverse Mortgage

While the process of listing your current home to sell, and contracting to purchase a new home are virtually the same, seniors using a reverse mortgage to buy that house can provide a very different outcome. Following is a recap of  how using an HECM loan (reverse mortgage) to buy a home can be a much more practical and beneficial option for seniors:

  1. Qualifying for the reverse mortgage involves very limited credit requirements, and employment, income or net worth are not considered.
  2. The amount of mortgage funds available is based on the borrower’s age, the purchase price of the home, and the current interest rate, not on a preset loan-to-value.
  3. Historically, the interest rate on an HECM loan for seniors wanting to buy a house is more favorable than other types of mortgages.
  4. Based on their available down payment, the borrower may qualify for a larger mortgage than is needed, in which case a smaller down payment would be leave the home buyer with a larger retirement nest-egg. Or, they can opt to make a larger down payment than is required, and then use the remaining reverse mortgage funds as an open line of credit to be used at their discretion in the years following the closing.
  5. The homeowners will never be required to make monthly mortgage payments as long as they reside in the home and keep property taxes current and the home insured.
  6. There is no term on the loan.  By statute, the reverse mortgage does not expire until the 150th birthday of the youngest borrower. They have the option to pay down or pay the loan in full at any time with no pre-payment penalty.
  7. This is a non-recourse loan.  Regardless of the future payoff on the loan, the homeowner or their heirs cannot be held liable for any loan balance beyond the value of the home at the time the loan is being repaid; however, any profits from the future sale belong to the homeowner or their heirs.