Purchasing a Home With Reverse Mortgage

August 29, 2010 | Posted by admin

Older Americans can use the reverse mortgage to supplement their social security, pay medical bills, do some home improvements, pay off the portion of the mortgage they still may owe and more. You would have to consider why you would need a reverse mortgage and if it would be right for you.

Reserve mortgages are simply a type of housing loan whereby you can convert part of your home equity into cash. You have been building equity in your home over the years through your mortgage payments, and you can receive this through payments, depending on the type of reverse mortgage you opt for or can receive.

A reverse mortgage differs from a traditional or second mortgage in that you are not required to repay any part of the reverse mortgage until you no longer use the home as your principal residence. These benefits are directly provided by the Federal Housing Administration’s HECM.

One advantage of this type of mortgage is that you can use it to purchase a primary residence, if you are going to have enough cash on hand to pay the difference between what your receive from the HECM, as well as the closing costs and sales price of the property you are purchasing.

A traditional second mortgage or home equity loan requires you to have enough income-to-debt ratio for loan qualification, and you will have to make monthly payments on your mortgage loan. A reverse mortgage actually pays you, and it is made available regardless of current income.

The limit on the amount that you can borrow depends on your age, current interest rates, appraisal value of your home, or any FHA mortgage limits for your area, whichever is the least amount.

The loan is not due as long as you live in the house and make it your principal residence, which means no payments have to be made. You will still be required to pay insurance, real estate taxes, and other payments, including utilities, maintenance costs, etc. When you have an HECM from the FHA, your home cannot be foreclosed, and you cannot be forced to vacate your residence since there are not mortgage payments that you can miss.

If you are a homeowner, 62 years or older, own your home outright, or have a mortgage balance that can be settled at closing from the money you will receive through the reverse loan, and you are going to live in the home, you are eligible. One of the requirements is for you to receive consumer information from an approved HECM counselor before you can obtain the loan.

Another qualification requirement is that your home must be 1-4 unit, and one of those units must be occupied by you, your spouse, or whomever the borrower is. Manufactured homes and condominiums that are approved by HUD that meet FHA requirements are also eligible for reverse mortgages.

Information about the FHA HECM is freely available on the HUD website, and you can also contact the AARP to clear up any questions you may have. You do not have to pay for this information, so you should not contact anyone who is charging a fee for putting you in contact with HECM lenders in your particular area. You can do a search online and find the location and name of HUD approved housing counseling in your area.

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