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First
a reverse mortgage is a lump sum payment or annuity that
is paid from a lender or insurance company to supplement or provide
income. As the homeowner you repay the mortgage obligation when
you sell or vacate the residence. When you die your estate is
responsible to pay back the loan. The amount owed will never
exceed the value of your home. If the home is sold and the proceeds
exceed the amount owed, the excess money goes back to you or
in the case of your death, your estate.
Further, when you buy a home with a reverse mortgage
it is not considered taxable income and does not affect Social
Security or Medicare benefits.
A home equity loan on the other hand, is a mortgage loan that
is secured by the residual equity in your home. To calculate
equity, you subtract mortgage debt from your home value. Home
equity loans allow a homeowner to make repairs or other home
improvements, refinance other debt, or use for miscellaneous
purposes. Unlike a home equity line of credit, a home equity
loan is an amortizing loan.
When you buy a home with a reverse mortgage
you are paid either a lump sum amount or annuity based on the
amount of equity in your home. For example, a monthly payment
of $1,000 for the next 120 months would be a 10 year monthly
annuity.
Aside from programs which help you buy a home with a reverse
mortgage there are various other types of reverse mortgages.
One type is for homeowners who want to tap into their equity
but not draw out the entire amount. Here an annuity or lump sum
would be paid out. Another reverse mortgage program is
a home equity conversion mortgage. Affiliated with FHA (the Federal
Housing Administration) this program combines the features of
a home equity loan and a line of credit. Here you receive a fixed
payment and can also draw on a credit line for additional cash.
The buy a home with a reverse mortgage program uses
the new home
as a source of repayment. You make a down payment and use the
reverse mortgage loan for the rest of the home’s
purchase price. You repay the loan with interest and other financing
costs, when you sell the home, no longer use it as a primary
residence, or in the case of your death, your estate would cover
the outstanding loan. Most types of homes are eligible.
Tremendous growth in the housing market over the last few
years has given many homeowners a considerable boast in equity.
As a result, some of these homeowners are now looking to buy
a home with a reverse mortgage.
Take for instance, the homeowners who purchased their homes
in the early 1960’s for a modest price and now in their
retirement years find their home has doubled or even tripled
in value.
With this kind of equity to play with many homeowners are
looking to buy a home with a reverse mortgage. This could
be a country home or a cottage property. Or, the funds could
even be used for luxury vacations, recreational vehicles, boats
– you name it!
If you were to buy a home with a reverse mortgage you
would be able to pay cash for the second ‘vacation’
home while continuing to live in your primary residence for as
long as you wish or are able. Once you die, your primary residence
would be sold to pay back your reverse mortgage loan,
while the second home would become part of your estate.
To participate in these reverse mortgage programs,
you and any co-borrowers must be at least age 62. In order to
buy a home with a reverse mortgage you also must
have no mortgage debt on your home. Further there are usually
no income requirements to participate in the above mentioned
programs.
According to Fannie Mae, a positive feature of reverse
mortgage programs is that you’re never obligated for
more than the loan balance or the value of the property, whichever
is less; no assets other than the home are used to repay the
debt. A reverse mortgage has neither a fixed maturity
date nor a fixed mortgage amount.
If you’re seriously looking to buy a home with a reverse
mortgage it’s important that you do your homework. Take
the time to comparison shop between lenders. Seeking the advice
of at least three reverse mortgage lenders is always wise. |
