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Reverse Mortgages to Buy a Home – Without down payment

442 Comments · Mortgage

Reverse Mortgages have been popular for a number of years as a way for people over 62 to tap the equity in their homes without selling them.

Qualified Seniors in the USA use this program to either get a lump sum, or a monthly payment amount.

Others have used the Reverse Mortgage to consolidate their debt or/and refinance a Mortgage.

The advantage is that there are no requirements to make monthly payments, you just pay the interest.

Under the Housing and Economic Recovery Act of 2008, Seniors can now use a Reverse Mortgage, referred to as a Home Equity Conversion Mortgage (HECM), to actually finance the purchase of a new home, as of Jan. 1, 2009.

This new option works exactly like a traditional Reverse Mortgage, with two major advantages. Even it’s getting more and more difficult to qualify for traditional Financing.

The first advantage is that there are no income requirements or limitations, and there is no minimum credit score (normal required credit score is 620).

If this is a second home purchase, you have the option to tap into your equity to buy that home without required mortgage payment.

The plan works like this.

The formula for the maximum loan amount is based upon the age of the senior.

The older they are, the more money available.

By using the proceeds of the previous home you will be buying the new home without the worry of making mortgage payments.

Two Important advantages:

1. You are not required to make monthly payments as long as you live in that home as your primary residence.

2. You don’t have to use the proceeds of the first home for the down payment, and then finance the rest. With the Reverse Mortgage, You simply would pay, based upon the formula, the amount required by HUD, and the balance is taken over by the NEW HOME.

For example, suppose you want to sell your home and move closer to the New York.

Your house is valued at $750,000, but the home they want to buy costs $900,000.

Previously, their only option would be to sell the house and get a new mortgage for the remaining $150,000.

For seniors on a limited income, qualifying for and making the payments on such a mortgage could be a serious obstacle.

Let’s say that the formula says that they would put up $420,000 from the sale of the property as a down payment, cover the rest with a $480,000 Reverse Mortgage, pocket the remaining $330,000 tax free from the sale of their original home and live mortgage free for the rest of their lives!

If a senior is resizing smaller, they would pocket even more Savings.

You still own the home, and you or your estate can still profit from any increase in the value of the home, minus the amount necessary to pay off the Reverse Mortgage.

Who would benefit? People that have the money to put down, but for whatever reason, has neither the credit or the income to qualify.

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