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Reverse
mortgages are seen as a way for seniors to tap into their current homes
as a source of income. By drawing from the equity they already have,
they can pay off bills, make improvements to their current residence, or
even take a well-earned vacation. There is one option that most do not
even consider: using a reverse mortgage for the purchase of a newer
property.
Understanding a Home Equity Conversion Mortgage
In
order to see how using a reverse mortgage for purchase of a newer
property works, you first must understand the Home Equity Conversion
Mortgage (HECM). The HECM is still relatively new, but it provides a way
for those who are 62 years or older to borrow against the value of the
home. With approval, the borrower gains access to funds without having
to make monthly payments. Repayment of the loan does not occur until the
borrower either passes away or sells the property.
This
loan is not an option for everyone. In fact, the guidelines stipulate a
minimum age of 62 years old. The borrower must also either own their
home outright or have a large amount of equity built up.
Using Reverse Mortgage for Purchase
For
some older Americans, the idea of living closer to family members is
ideal, but they do not necessarily want to give up their existing home.
If this is the case, they may apply for a reverse mortgage. The borrower
must occupy this second home for a set portion of the calendar, and the
original residence, which the loan is against, must be the borrower's
primary residence.
When
using a reverse mortgage for purchase, there are some limitations. For
example, this type of loan only covers 47 to 52 percent of the purchase
price. It is the borrower's responsibility to make up the difference.
This money can come from a retirement account, savings, or a gift. The
actual amount borrowed depends on the age of the youngest borrower,
current interest rate, mortgage insurance premium, and the home's value
at appraisal.
Additionally,
only certain types of residences qualify for a reverse mortgage. These
include single-family homes and two to four unit homes where the
borrower occupies one of the units. For condominiums, the U.S.
Department of Housing and Urban Development requires preapproval. In
addition, manufactured homes must also have FHA preapproval. The
borrower must also obtain a certificate of occupancy for any new
construction.
A
reverse mortgage is a great way for seniors to get a second home closer
to family. As with a traditional HECM, there are no monthly payments
due. A single, balloon payment, is due at the sale of the home, when the
last borrower moves out or passes away. This payment is a total of the
principle plus interest. If the home sells for more than this amount,
the borrower, heirs, or the estate retains the remaining equity. Should
the home appraise and sell for less than the amount owed, there is a
guarantee of no personal liability. Lenders are insured against this
type of loss.
To learn more about your options for a reverse mortgage for purchase, visit http://www.reversenorthwest.com/rm-basics.
Article Source: http://EzineArticles.com/expert/Abraham_Avotina/663190
Article Source: http://EzineArticles.com/9384125
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