Buy a Home with a Reverse Mortgage
Reverse mortgage loans have always been a great way to turn the equity in your home into tax free cash, without having to make monthly payments. Changes by Congress to the FHA-insured Reverse Mortgage program now allow seniors to buy a home with a reverse mortgage – with no credit score requirement or income verification!
If you are thinking of downsizing and wanting to get into a home that is much easier to manage, a Reverse Mortgage Purchase Program may fit your needs. Americans 62+ can now use the equity from the sale of their previous home, or other cash or savings, to move into a different home. You will never have to make another mortgage payment, as long as you live in the home as your primary residence, maintain the home, and pay the annual taxes and insurance. All the other benefits of a reverse mortgage still apply:
You keep the title/ownership of the property
After you pass away, the remaining equity goes to your heirs – not the bank
There is no pre-payment penalty
It’s FHA insured
Imagine the financial independence you will receive by eliminating your largest monthly debt obligation. The money that you were spending on a monthly mortgage note can now be used to travel, spoil the grand children or any number of things that before were financially hard to do.
Purchasing a home with a reverse mortgage is very similar to purchasing a home with a conventional mortgage, with two minor exceptions. Rather than determining a down payment based solely on the purchase price, the minimum down payment will be based on a factor of your age, interest rates, and the lesser of the home’s appraised value, purchase price, or FHA-imposed national lending limit. That lending limit is currently $625,500. In general, the older you are the less will be required for down payment. The obvious benefit is the down payment would be the only payment you would ever make towards the purchase, regardless of how long you end up living in the house or what happens to home values. HUD also requires independent counseling to insure that the senior understands how the reverse mortgage works. This counseling can be handled over the phone and only takes about 45 minutes to complete.
Once an offer is accepted on a home, your reverse mortgage lender will work with the real estate agents to open title with a local title company. Reverse mortgage appraisals, inspections, contingencies, documents, and closings are virtually the same as those with a conventional mortgage. These loans can typically close within 30-45 days.
A married couple wants to purchase a home valued at $300,000. The youngest spouse is 68 years old. There are currently three fixed rate options and one monthly labor option to choose from. The option that you choose will impact the amount needed at closing. For this example, we will use the fixed rate option of 5.685%. Based on the youngest borrower’s age, rate and sales price, the down payment and closing costs would be approximately $128,500. The monthly mortgage payment on this would be zero. A conventional mortgage loan would obviously require less down, however, you would have a monthly mortgage payment.
The eligibility requirements are as follows:
All titleholders must be aged 62 or over
The purchased home must be your principal residence
The purchased home must meet HUD’s minimum property standards and be either a single-family residence, a residence in a 1 – 4 unit dwelling, or certain condominiums.
The down payment must be from qualifying sources
You must complete a HUD-approved counseling session
Your reverse lender can discuss with you additional details about your home purchase options, such as:
Process for purchasing a newly constructed home
Applying a larger down payment to use as financial planning tool
Closing costs in the Reverse Mortgage loan
There are a number of variables that go into determining if a reverse mortgage is the right thing to do. Pinnacle Mortgage Group has the expertise to help guide you through the process and help answer your questions. Give them a call today.