How About Using A Reverse Mortgage To Purchase A Home

Dated: 03/05/2014

Views: 3310

Most folks have heard of reverse mortgage programs designed to let senior homeowners with substantial equity borrow money on their home by receiving a periodic payment that is applied against the equity in the home. In other words, as the homeowner receives payments their equity in the home decreases. Overall, it appears to be a good way to get cash from the equity in a home and still live in the home.

Well, I recently attended a presentation on how to use a reverse mortgage to purchase a home. While the presenter talked about all of the requirements and benefits associated with the program, I am only going to mention the primary aspects of the program, or as some may call the “teasers”. Of course I do this with the understanding that; 1) I am not a reverse or otherwise mortgage expert, and 2) as with any mortgage product, the value and benefits are subject to the borrower’s needs.

First, the borrower must be aged 62 or older and will be using the home as a primary residence. Next the borrower must have a cash down payment of 50% or more of the purchase price. The maximum loan amount is based on a complicated formula that considers the value of the home (up to a maximum cap), the exact age of the borrower or the youngest borrower if married, and the interest rate. As stated earlier, there are more requirements concerning the condition of the home, whether an existing home is retained, mandatory counseling, no seller concessions, and the like. However, I am keeping my review simple.  So let’s assume a qualified buyer purchases a qualified home with a 50% down payment with the 50% balance of the home price to be paid by a reverse mortgage. What this means is the borrower makes no payments on the loan until the borrower (or remaining borrower if one should die) moves, sells or dies. The interest accrues and compounds on the principal.

Some of the obvious benefits are; 1) a qualified borrower can purchase a home at a higher price without ever having a house payment, 2) a qualified borrower can sell their current home, move in to a like home and get cash for their equity, and 3) unlike most other loans, credit score, income and net worth are not considerations in the loan qualification process.
If interested in knowing more about a reverse mortgage for purchasing a home, contact me for additional information.  
Hank Johnson
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Hank Johnson

Hank Johnson, a graduate of The Citadel, has a proven track record as a CFO, businessman, Entrepreneur and real estate investor. Hank has been active and successful in the Charleston community for ove....

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