New Reverse Mortgage Law Gives Home Buyers Another Option
Borrowers, aged 62 and older, now have an additional financial tool to help them purchase that home they formerly thought was out of the budget. As of january 1, 2009 the government is allowing the reverse mortgage to be used the fund the purchase of a home, rather than just as a refinancing tool. The program works almost identically to any other home purchase with a mortgage. The borrower brings in adequate downpayment, and the mortgage company funds the loan.
How this program is of use the the borrower is in the fact that the borrower is not required to make mortgage payment to the lender.
Traditionally, the reverse mortgage acted as a safety net for seniors, allowing them to use the equity in their homes as a source of income to supplement their lifestyles. In return a reverse mortgage lender allows interest on borrowed moneys to accrue rather than being repaid to the lender on a monthly basis.
Reverse mortgage lenders make money from the accrual of interest over time. When the last surviving spouse dies or the borrower chooses to sell the property, the original loan plus accrued interest is repaid to the bank.
This is how the reverse mortgage purchase program works:
1. Borrower is to get a reverse mortgage approval letter from a HUD approved reverse mortgage lender. In conversation with the lender the senior will be advised as to the amount of funds necessary for down payment, closing costs, maximum purchase price, and reverse mortgage loan options.
2. Go home shopping and write contract based upon guidelines in the approval letter.
3. The approval letter will roughly outline down payment and closing costs. The borrower deposits this amount with the title company.
4. Reverse mortgage lender funds the remaining principal balance. Borrower will have a choice of financing closing costs or paying out of pocket for them.
5. Title company or attorney records transaction and borrower takes ownership of the home.
6. The obligations to the mortgage are as follows: live in the home as primary residence, keep the property in reasonably habitable condition (per FHA guidelines) and pay property taxes and home owners insurance.
Reverse mortgages have been and always will be primarily for those in need of funds to supplement lifestyle. The purchase program simply offers a new financial tool. Some seniors, as my phones have already started to ring, will definitely excercise this option.
How this program is of use the the borrower is in the fact that the borrower is not required to make mortgage payment to the lender.
Traditionally, the reverse mortgage acted as a safety net for seniors, allowing them to use the equity in their homes as a source of income to supplement their lifestyles. In return a reverse mortgage lender allows interest on borrowed moneys to accrue rather than being repaid to the lender on a monthly basis.
Reverse mortgage lenders make money from the accrual of interest over time. When the last surviving spouse dies or the borrower chooses to sell the property, the original loan plus accrued interest is repaid to the bank.
This is how the reverse mortgage purchase program works:
1. Borrower is to get a reverse mortgage approval letter from a HUD approved reverse mortgage lender. In conversation with the lender the senior will be advised as to the amount of funds necessary for down payment, closing costs, maximum purchase price, and reverse mortgage loan options.
2. Go home shopping and write contract based upon guidelines in the approval letter.
3. The approval letter will roughly outline down payment and closing costs. The borrower deposits this amount with the title company.
4. Reverse mortgage lender funds the remaining principal balance. Borrower will have a choice of financing closing costs or paying out of pocket for them.
5. Title company or attorney records transaction and borrower takes ownership of the home.
6. The obligations to the mortgage are as follows: live in the home as primary residence, keep the property in reasonably habitable condition (per FHA guidelines) and pay property taxes and home owners insurance.
Reverse mortgages have been and always will be primarily for those in need of funds to supplement lifestyle. The purchase program simply offers a new financial tool. Some seniors, as my phones have already started to ring, will definitely excercise this option.
About the Author:
To learn more about purchasing a home with a reverse mortgage go to The Quintessential Guide to the Texas Reverse Mortgage. Everyday reverse mortgage queries answered at Everything You Need to Know About the Reverse Mortgage in Texas.
posted by Credit Counseling at
6:17 PM
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