Retirees work all of their lives to get to the point of relaxing and enjoying retirement years. A primary goal is to buy a home with no monthly payment and then age in place. Well, this normally means paying cash for a home. But many seniors, Realtors, builders, and even lenders are not familiar with the alternative of a reverse mortgage purchase.
Yes, seniors 62 or older can use a Reverse Mortgage to purchase a home during retirement. That’s right, a purchase! Many people that have heard of reverse mortgages only think of them as a way of getting cash out as a refinance. Yet now a HECM purchase is available. Therefore it is not necessary for two closings. Just close the reverse mortgage purchase up-front and that’s it. Then just enjoy retirement with no mortgage payment! As any mortgage, borrowers must continue to pay property taxes and keep the property insured at all times. Of course, Reverse Mortgages are not the only financing option for seniors to purchase. Retirees could consider any mortgage just as any other buyer would.
Questions to Ask Yourself When Considering a Reverse Mortgage:
1) Will living at home work for me?
2) What resources do I have to help me stay at home?
3) How long can I continue to live at home?
Everyone’s situation is different and that is why the borrowers, any advisors, family members, our reverse lending loan officers, and the counselor will discuss options in detail to ensure the best choice is made.
So if you are 62 or older looking to purchase a home, contact us. We would be happy to go over a Reverse Mortgage Purchase and other options with you. Check out the benefits of a reverse mortgage purchase.
Reverse Mortgage Purchase Benefits
- There is no payment required on the mortgage, while property taxes and insurance must be paid
- Borrowers can stay in the house as long as they live
- Way to preserve investment or savings accounts
- Increases a borrower’s monthly cash flow
- Can be a valuable tax planning tool (by having no payment, seniors may not have to draw extra funds from a 401k or Traditional IRA which could create income taxes to pay)
- Afford the house you want or need
Reverse Mortgage Purchase Example to See How it Works
A retired, married couple that are 76 and 72 years old have $200,000 from the sale of a prior home to put towards purchasing a retirement home. They both receive social security which is not taxed and have a traditional IRA account which they could access as a lump sum or as income if needed.
Buyers’ Goals: The couple wants to move to North Carolina, live in a community that is in close proximity to healthcare and has many activities for them, spend $200,000 on a house (using their savings which is from selling their prior home), and have no house payment.
The problem: The couple finds the perfect neighborhood, the right house overlooking a golf course with a one-level floor plan, and the fly in the ointment is it costs $300,000! So they really start thinking “Well, if we start a distribution from our IRA, we can make the payments on a $100,000 mortgage or maybe we just need to lower our expectations on a house”.
Reverse Mortgage Purchase Solution: This is where a Reverse Mortgage could possibly help out by the buyers. Here are the reasons why…
- Still having a good amount in their savings account
- Having no monthly mortgage payment other than paying taxes and insurances
- Preserving their IRA account (saves a taxable event)
- Being able to move into the house they really, really want!
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Learn really how HECM mortgages work
Helpful Tips to Know When Using a Reverse Mortgage Purchase
- All repairs must be completed prior to closing
- Seller may not pay any of the buyer’s closing costs or pre-paids
- Buyers may own other properties but must have sufficient income
- Credit qualifications and restrictions to purchase if borrowers had a foreclosure or short sale within the last 3 years
- Buyer would need to bring the required down payment plus the closing costs to closing
- If new construction, the loan application CANNOT be taken until after the Certificate of Occupancy has been issued on the house
- Buyers may take the required counseling before or after contract (counseling is good for 6 months)
- There are a few extra forms required along with the purchase contract (we provide these)
We hope that you find this article helpful and we are happy to sit down with retirees to determine if a Reverse Mortgage is the right solution for you. If you want to learn more, check out our Reverse Mortgage page.
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