Reverse Mortgage: How does it help you when buying a house?

by Alex Brown Consultant

When people are looking to buy a house, they have a lot of things in mind. One of the major things is cash. Usually, after retirement, people get stressed out. They know that they have to invest the money they are left with to the right place. They know that they have to be smart about buying a house. Many of the people are not aware of the term reverse mortgage. The people who are familiar with this term ask questions like:

· How does reverse mortgage help us?

· Can we buy a house through reverse mortgage?

· Does reverse mortgage cost more?

After reading this article, you will be able to tell if reverse mortgage for home purchase is worth considering:

Reverse Mortgage:

First of all, let’s explain what reverse mortgage really is. Reverse mortgage is something the retirees or elder people take in their late years to help pay of mortgage or increase cash flow. This can be a major retirement tool that elder people can use to increase their cash flow. This can be done using their biggest assets, their homes. Reverse mortgage is basically when homeowners buy against their homes equity, while still keeping the ownership.

* Equity: The different between an owner’s assets and liabilities. For example, if someone owns a TV worth $500 but owes $100 for it, the TV’s equity would be $400.

How does it work?

Reverse mortgage has a more complex name to it. It is called the Home Equity Conversion Mortgage HECM for Purchase that has been insured by the Federal Housing Administration (FHA).

It allows the homeowner to buy a house by taking a loan against the costs of the house with no payments against the loan. The ownership remains until the owner’s life. After that the lender would need to recoup the investment. As the owner pays, the equity on the house decreases.

How do you qualify?

If you’re purchasing a house through HECM, the points remain the same. You have to have enough money for the down payment as well as you should be at least 62 years of age. The down payment is based on the youngest borrowers age and property location.

Tip: Try this free calculator to estimate your required down payment https://reverse.mortgage/purchase-calculator)

Can I get under construction home?

This can be possible if the house has a Certificate of Occupancy. This is in the case of both a new house and a house under construction. This kind of Certificate is granted by the HECM. Your local estate agent must be able to tell you that if the certificate has been granted in order to move the purchase forward.

Cash flow?

This depends on what kind of a house you buy and what kind of money you are willing to invest. You can ask for monthly payments to give your cash flow a boost.

The Pros:

· Source of income:

People can boost their income by choosing the line of credit, payments or even a lump sum. The payment option depends on the house owner and he can boost his cash flow according to his own mind. People living on fixed income may choose fixed payment methods.

· Tax benefits:

The income from a reverse mortgage is usually referred to as a loan so it most possible be tax free. However, you should still consult your tax attorney for perfect information.

· No social security or Medicare:

Reverse Mortgage is usually used to give fixed payments to the home owner. This will most probably not be penalized with Medicare or social security fee. Still, consult your attorney in this matter to be sure of it.

· Precise cost:

The cost is just as the cost of the house. There is a misconception that the cost might cross the actual cost of the house. This is false as the cost remains as it is. You will only be paying for the house. Not excess cost is charged.

· Home title:

The title stays with the home owner. There is no chance of the owner losing the title ship to the house. The owner can rest assured that as long as he’s alive, the house is owned by him only.

The Cons:

· Medicaid Impact:

It is possible that the eligibility towards Medicaid can affect the ownership or purchase through reverse mortgage.

· Fees:

The origination and closing costs might be charged by the lenders.

· Counselling:

The owners should be taking debt counselling in order to get full knowledge of the whole scenario. This can be a hassle but it proves to be a major factor when you’re looking to buy a house through reverse mortgage.

· Interest Rate:

Interest rates can raise according to the purchase, Right now they are quite low, but there is a chance that they might increase.

· Taxes and Insurance:

This is a major point as homeowner’s taxes and insurance has to be paid in order to keep the title ship.

The Myths and Truths:

· Title ship:

There is a myth that ownership to the house is lost and the title ship is changed while you acquire reverse mortgage for your house. This is completely wrong as you stay the owner of the house as long as you hand over the title or till your death.

· Costly:

Reverse mortgage is thought to be very costly. There is a myth that when a house is bought through reverse mortgage, it would cost more than the actual cost. This is completely false as that does not happen.

· Eviction:

There is another myth that the owner is evicted or turned out of their own homes. This is completely false as you leave your home only when you choose to. The title ship is in your name so nobody can turn you out of your home.

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