Reverse Mortgages: Use it to refinance or to purchase
Yes, you can use a Reverse Mortgage to refinance, but don’t forget about letting the Realtors you work with know that you can also use it to buy a home. As long as one borrower is 62 or older, either option can work.
If a homeowner is looking for a way to supplement their income, an FHA insured Reverse Mortgage may be their answer. A Reverse Mortgage, otherwise known as the Home Equity Conversion Mortgage (HECM) loan, allows the borrower to access a portion of their home’s equity to obtain tax free funds without having to make monthly payments.
What are some things that can be done with the funds received?
- Pay off existing mortgage
- Pay off other loans/debts/pay home health care expenses
- Improve monthly cash flow
- Fund necessary home repairs
- Keep the line available for unplanned expenses
The amount a client receives is based on current interest rates, the age of the youngest borrower, and the lesser of the appraised value of the home, sales price, or the maximum lending limit.
Repaying the Reverse Loan
Loan repayment is not due as long as you meet the loan obligations
- Living in the home as their primary residence
- Continue to pay property taxes and insurance
- Maintain the home according to FHA requirements
The borrower, or their heirs, will not be required to pay more than the value of the home at the time the loan is repaid; even if the loan balance exceeds the value of the home. Any remaining equity goes to the borrower or their heirs once the loan is repaid.
- One homeowner must be at least 62 years old
- Live in your home as your primary residence and have sufficient equity
- Be able to pay off the existing mortgage through the Reverse Mortgage loan proceeds
- condominium or manufactured home.
- Must meet financial criteria as established by HUD.
Funds available, Distribution options, Interest rates and Costs
- Fixed and variable rates are available
- Most closing costs and fees can be financed as part of the loan, resulting in little or no upfront fees
- Receive the funds in a lump sum, a regular monthly payment, a credit line, or a combination of these options.
- The funds available may be somewhat restricted for the first 12 months after loan closing.
You may need to set aside additional funds from loan proceeds to pay for taxes and insurance.
Using a Reverse Mortgage to purchase a home; Home buying without Mortgage payments
A Reverse Mortgage,) for Purchase loan may help a client buy their next home without required monthly payments. The HECM for Purchase product is a Federal Housing Administration (FHA) insurance home loan that allows senior to use the equity from the sale of a previous residence to buy their next primary home in one transaction.
Many home buyers use the Reverse Mortgage for Purchase to:
- Right size to a smaller, lower maintenance home
- Buy a home closer to family and friends
- Lower their cost of living in retirement
What are the customer benefits to using the Reverse Mortgage for Purchase?
- Eliminates monthly mortgage payments
- Increases your purchasing power
- Preserves your cash
For both the Reverse Mortgage Refinance and the Reverse Mortgage for Purchase, an independent HUD counseling, typically over the phone, is required prior to loan application. A Reverse Mortgage is a very important tool that is used to enhance our client’s financial security.