A reverse mortgage loan can be used by a borrower to finance an existing home or to purchase a new house that will not require monthly mortgage payments of any sort. Borrowers must still pay taxes and insurance coats as well as maintain the physical condition of the home.
Reverse mortgages have a number of practical uses. These loans can be used by the borrower to refinance, pay off their existing debts, put money towards healthcare costs, pay for normal expenses, or to purchase a new home that better suits their needs.
USING A REVERSE MORTGAGE TO PURCHASE A HOME
Reverse mortgages can be advantageous to buy a new home. These loans allow for the home to be purchased with a single down payment.* The funds for the downpayment can come from the sale proceeds of their previous home, 401k, and other applicable sources that meet the guidelines established by the U.S. Department of Housing and Urban Development (HUD).
All of this means that the borrower will not have monthly mortgage payments so long as the homeowner permanently lives in the house, pays their taxes and insurance, and takes appropriate measures to maintain the home and property.* The required down payment on your new home is determined by a number of factors. These factors can include your age (or eligible non-borrowing spouse’s age, if applicable); current interest rates; and/or the lesser of the home’s appraised value or purchase price.
REVERSE MORTGAGE TIPS
Unlike a traditional mortgage, which is typically distributed to the borrower as a lump sum, there are a variety of ways that you can use a reverse mortgage to fit your needs.
The first option is to refinance with a reverse mortgage and use the funds to pay off an existing mortgage and thus eliminate monthly mortgage payments. You must still pay taxes and insurance for the property and maintain the home. Overall, this generally means that a person will increase their cash flow. The actual reverse mortgage available funds are based on current interest rates, current charges associated with loan, borrower date of birth (or non-borrowing spouse, if applicable), and standard closing costs.
Another option is to refinance and get a lump sum of money. This makes it possible to either pay off an existing mortgage, or to have an accessible sum of cash for other expenses. A person can potentially pay off an existing mortgage with this strategy, if they have enough equity available.
The third option available to borrowers is to refinance with a reverse mortgage and get a reverse mortgage line of credit. The unused funds in the credit line grow each year based off a certain growth factor. This
can be beneficial for those looking for flexibility on when to use their loan proceeds. This can be used in combination with other proceed options as well.
A final option is to refinance and get a monthly cash flow payment. This allows people to have increased cash flow that they can use to pay other expenses. This is a good option for people who do not want to have a lump sum or a credit line, and just want to have a certain amount of money per month to use at their discretion.
If you or someone you know is interested in a reverse mortgage, be sure to contact us today! The GEM mortgage team is ready to answer your questions and help determine if a reverse mortgage is the right loan option to fit your needs.
*These materials are not from HUD or FHA and were not approved by HUD or a government agency.
*Reverse mortgage borrowers are required to obtain an eligibility certificate by receiving counseling sessions with a HUD-approved agency. The youngest borrower must be at least 62 years old. Monthly reverse mortgage advances may affect eligibility for some other programs. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates and programs are subject to change without notice. All products are subject to credit and property approval. Other restrictions and limitations may apply. Equal Housing Lender. Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act, License No 41DBO-78367, Licensed by the Department of Business Oversight under the California Financing Law, NMLS #2289. Loans made or arranged pursuant to a California Residential Mortgage Lending Act License.