As we know, the home buying process is a deeply personal project. You spend weeks looking for the best neighborhoods, the perfect layout, and the greatest amenities. As time progresses, though, sometimes the things that were perfect are no longer the best fit. When your children move out, you may not need as many bedrooms. When you no longer have pets, the large backyard may become too much to maintain.
It may be time to rightsize your home, but is this even possible when you’re on a reduced or fixed income? It is!
If you are nearing retirement age, there’s a strong possibility that you’ve heard about Reverse Mortgages. What you may not have heard is how this product could be a wonderful way to build a new home that fits your current needs.
First things first – what is a Reverse Mortgage?
As a home owner, you’re already familiar with the way a traditional mortgage works. After making your initial down payment, you made monthly payments toward the loan. As time progressed, you paid interest and principal, ultimately earning equity in the home along the way. With a reverse mortgage, you can tap into your home’s equity in order to generate income for yourself. Rather than paying a monthly mortgage payment, you will receive money that you can use, all while maintaining ownership of your home.
Using a Reverse Mortgage to purchase a new home
Let’s take a look at a scenario.
Charles is a 65 year old retiree. He lives in the home he purchased for his family, a large 5 bedroom on several rural acres. As the home has aged, maintaining all of it has become a chore. On top of that, his children live several states away and traveling to see them has become increasingly difficult. When he sells the home, he’s able to net $250,000.
Charles can take that $250,000 and locate a fixer upper closer to his family, but this may mean compromising on several features, be it location, home layout, or amenities. However, if he considers a Reverse Mortgage, it’s possible for him to use the proceeds from the home sale as a down payment on a new construction, giving him freedom to customize the layout for his needs and fill the home with new, modern amenities. New amenities means less repair work, which means more time spent doing the things he loves. Plus, no monthly mortgage payment!
How do I qualify for a Reverse Mortgage?
A reverse mortgage can be a useful financial tool, but there are specific eligibility requirements that need to be met.
- The youngest borrower must be at least 60 years old (or 62 years old, for an FHA Insurance [HECM])
- You must live in your home as the primary residence (this means no investment properties are eligible)
- You must be listed as the owner of your home on the title
- You must have sufficient equity in your home
- If purchasing a new construction home, a Certificate of Occupancy must be submitted prior to closing
- Must meet FHA property and flood requirements
- Must be one of the following types of property: single family home, 2-4 unit home (with one unit being occupied by you), or FHA-approved condo
With this type of loan, you will not be required to make monthly payments toward the balance – the balance will become due when the last borrower no longer lives in the home or passes away, or when the home is sold. It is important to note that, while monthly payments are not required, you will still need to maintain the home and pay applicable property taxes, home owners insurance and HOA fees. Neglecting to pay those items will not only cause issues with your local municipality, it will also cause the balance of the mortgage to become due.
Working with a Trusted Lender
Reverse mortgages have many nuances that differentiate them from traditional mortgages, so it is important to discuss your financial goals with an experienced Loan Officer in order to ensure you’re completely up-to-speed before signing on the dotted line.
Service First has a dedicated team dealing specifically with Reverse Mortgages, so you can rest assured that the team will be informed about new developments affecting these mortgages, as well as any requirements necessary to make the lending process as seamless as possible.
If you’re ready to get started on your home buying journey, we can help!
Contact us today!