Reversal of… Mortgage
Buying a home with a Reverse Mortgage
An option that can buy you more home, and never have a mortgage payment, is a reverse purchase. Just as you would for a HECM (home equity conversion mortgage) refinance, you have to meet certain requirements. An individual or at least one spouse must be at least 62 years of age, and you would need a significant amount down.
How It Works
A reverse purchase works like a reverse refinance. Payment for the dollar amount financed is taken from the equity in the property. The borrower pays property taxes and insurance but never makes a mortgage payment.
Utilizing a HECM purchase can buy you more home, without creating a new bill to pay.
Scenario – You have $500,000 to purchase a property all cash. But the properties in the area you want are $600,000 to $650,000. If you finance the additional amount with a conforming (forward) mortgage, you incur a monthly expense for the next 15 to 30 years. Financing the balance with a reverse and you pay nothing out of pocket, ever.
You can generally leverage the equity up to at least 50%, so in the last scenario, if you have $500,000 to buy a property, you could likely purchase a property worth up to $1,000,000, maybe higher. So in essence you can purchase a property valued at up to double the amount you have to invest with no income requirements.
As time goes by, if the equity increases due to property appreciation, or if you didn’t max leverage your equity the first time, you can always do a HECM to HECM refinance and pull out more cash, or establish a line of credit. Income isn’t a factor. As long as you cover taxes and insurance.
Buying a property with a reverse mortgage isn’t the right solution for everyone. But it is an available solution that may be beneficial. Contact us for more information.
