Reverse mortgages are for homeowners 62 years of age and older. They are home equity conversion mortgages that allow a person to convert some of their home equity into accessible tax-free funds.
It is an FHA-insured loan that, combined with other assets, allows qualified buyers to have more money to purchase a new home. There are no income, credit score or employment requirements for a reverse mortgage. If a borrower has a remaining mortgage balance, he or she might still qualify for a reverse mortgage, but the remaining balance must be paid off with the reverse mortgage proceeds.
This program provides additional funds to purchase a new home that better suits their next stage of life, without taking on a new monthly mortgage payment. This type of loan typically appeals to last-time buyers (recall last week’s column about types of buyers). These homeowners might be downsizing and relocating to be close to their friends, family or a certain climate or culture that best suits their health or lifestyle.
Do you know someone who is talking about moving after they retire? I hope the following real-life story can help you or someone you know.
Bob and Mary, both 65, asked me for help in their search for a more accommodating single-story home. They are also working with me to sell their current two-story home. In a separate transaction, they are looking into buying a new single-story home in a housing development under construction by a national builder.
Here is Bob and Mary’s customized game plan to qualify for their reverse mortgage for their new single-story home.
Step 1: Bob and Mary first meet with the builder to choose a floor plan and desired upgrades. The home that caught their eye is a beautiful stucco, tiled roof, paver stone driveway model priced at $300,000. This newer home is located closer to their children and their nine grandchildren. It’s a dream come true for Mary and has a larger three-car garage for Bob.
Step 2: Bob and Mary are introduced to Jennifer, a local loan officer who specializes in reverse mortgages. Jennifer calculates that Bob and Mary will need to provide $101,920 by subtracting the reverse mortgage proceeds ($198,000) from the purchase price of the home ($300,000).
Step 3: Bob and Mary combine the $101,920 from the sale of their previous home with the $198,080 reverse mortgage to purchase a new home for $300,000 — and have no monthly mortgage payments.
Bob and Mary sold their previous home in less than 30 days. They will soon celebrate their first Easter in their new home.
Sound too easy? Read on and get your facts straight.
To purchase a home, a person can access several resources to have the cash to close the sale. This can include the sale of a previous home, the sale of other assets (stocks, 401K, etc,) or a savings account.
Several types of property qualify for a reverse mortgage: single-family home, HUD-approved condos, planned unit developments (PUDs), two- to four-unit properties (owner must occupy one of the units) or manufactured homes built after June 15, 1976.
There are several major benefits of a reverse mortgage. A person can receive the reverse mortgage funds in a plan that fits their needs: lump sum, monthly installments, a line of credit to draw from as needed or any combination of the three. And you can change your payment plan at any time throughout the life of the loan. Reverse mortgage funds can be used any way the borrower chooses, including paying off an existing mortgage, supplementing monthly living expenses, paying for home repairs or renovations, covering medical costs or reducing credit card debts.
As long as all the program requirements are met, the borrower continues to own and live in the home against which the reverse mortgage is taken out.
To find out if a reverse mortgage is right for you, be sure to work with a local loan officer who will help you understand the program and how to qualify. You might never have to make a payment again.
Annie Christian is a real estate broker and owner of The Annie Christian Real Estate Group. She helps clients with everything from buying and selling to foreclosure and short sale. To submit a question to her, call 351-5117. Her website is www.anniechristian.com.