Sorry, kids, these notes are for people aged 62 and older. We’re talking about reverse mortgage, which is only available to that age group. It’s a federally insured home loan usually used for refinancing, but let’s see how it might be used to purchase a home.
Remember the whole point of a reverse mortgage is ‘no house payments’. The homeowner turns the equity of their home into a loan with a growing balance over time, specifically designed so no house payments are due until the house is sold or the last borrower dies.
Using reverse for purchase works well for those able to make a big down payment. Mr T just closed his reverse purchase and bought a house for $435,000. He’s 72 years old, and brought $128,000 cash to the closing table. He’s responsible for the property taxes and homeowners insurance, but his reverse mortgage means he will never have a house payment for as long as he lives in the house.
Every month, the interest and mortgage insurance due on his current balance will be added to the loan. That’s the ‘reverse’ part. The federal insurance portion of the loan assures that if he should want to move in the future, and the loan balance has grown bigger than the market value, he is not personally liable for the debt. Reverse mortgage is a non-recourse loan, and the balance is tied to the house. Pretty amazing stuff.
If we skinny up the example and talk about a couple, both aged 62, buying a home for $250,000: They’ll bring in just over $106,000 at closing with their reverse purchase.
The benefit of this approach is in keeping cash assets as reserves. Especially if the asset is being used to generate income, like a monthly IRA draw or dividend disbursement, we are not depleting an income source.
These folks could get a ‘regular’ loan in either situation, but then they have to qualify for the loan with regard to income and credit. Too, that means a house payment throughout their retirement years. No such requirements for reverse.
We’ve got some restrictions on how the purchase will be structured that bear discussion, so if you or anyone you know is curious about the mechanics of this loan approach, contact me and let’s talk about precisely how this loan might benefit you.
Tammy Engel is your local Mortgage Advisor and has been working for your best interest throughout California since 1990. Contact her at 661/822-REAL for your questions about purchase, refinance, and reverse mortgage.