HOW IT WORKS

Q: What is a Reverse Mortgage for Purchase (HECM for Purchase)?
A: The Reverse Mortgage for Purchase allows a senior 62 or older to purchase a home using the Reverse Mortgage as purchase money. So much like a regular home purchase seniaro a Realtor can find a home for their client, the client puts a downpayment into escrow and the Reverse Mortgage picks up the difference between the purchase price and downpayment so escrow will close. This is the same way a conventional loan would allow a client to purchase a home.

Q: Why would a client want to purchase a home with a Reverse Mortgage?
A: There are many reasons why a client would want to use a Reverse Mortgage to purchase a home. Here are just a few:

  1. Once escrow has closed the client will not have to make anymore monthly mortgage payments as long as they live in the home. This is a huge benefit as it frees up money the client can put in the bank for the future or spend in other areas.
  2. The reverse mortgage for purchase can be much easier to qualify for then a traditional loan. We are much less strict on income, fico scores, bankruptcies so on and so forth.
  3. A client can increase their purchase power without adding on a larger monthly mortgage payment. We can usually at least double the purchase power of a cash buyer.

Q: What types of homes are eligible?
A: To be eligible for the FHA Reverse Mortgage, your home must be a single family home or a 2-4 unit home with one unit occupied by the borrower. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible.

Q: What are the differences between a reverse mortgage and a home equity loan?
A: With a second mortgage, or a home equity line of credit, borrowers must make monthly payments on the principal and interest. A reverse mortgage is different, because it pays you – there are no monthly principal and interest payments. With a reverse mortgage, you are required to pay real estate taxes, utilities, and hazard and flood insurance premiums.

Q: Will the heirs be able to inhert the home?
A: Much like a convential mortgage when the borrowers on a reverse mortgage have passed away the heirs can keep the home and retain the equity. This is done by paying off the current mortgage by getting a new loan, paying cash or using a combination of the two. The bank does not keep the heirs equity they simply want the balance of the loan paid off. In fact a benefit that heirs do have with a revevse mortgage that they do not have with a convential loan is this. If the home is underwater when the borrower pass away the heirs do not have to payoff the entire balance to the bank to get the home. They can simply give the bank 95% of the home value and get the home. So that means in almost all cases the heirs have the opportunity to realize an equity position no matter what is owed to the bank when the borrowers pass away.

Example. A client had a Reverse Mortgage and at the time of their passing the real estate market had suffered a large down turn. So the borrower owed $550,000 but the home was worth only $500,000. The heirs could get the home from the bank for $475,000 even though their parents owed $550,000. Here we see they were forgiven $75,000 of their parents debt and retained the home with $25,000 of new equity.

Q: Can title to the home be placed in a trust?
A: The title of the home will still remain in the clients name or they can put it in their trust. The title should be vested in the trust at the time of closing so the lender can review and approve it.

Q: Can I make a payment on a reverse mortgage?
A: Although you are not required to make a monthly payment on a reverse mortgage you can if you choose to. A senior can use a reverse mortgage to buy a home and then if they choose to make a monthly payment on it to control the balance.

Q: Does the bank own my home?
A: The bank does not own your home they are a lien holder on title. If the rules of the reverse mortgage are not followed by the borrower then the bank could start foreclosure proceedings. These rules would include keeping the home as a primary residence, paying the property taxes, paying the homeowners insurance, maintaining the home to FHA standards and if applicable paying HOA dues.

The R4P app will help you calculate the downpayment a home buyer will need to have depending on Purchase Price entered. It also calculates the amount the Reverse Mortgage for Purchase will pick up.

A MUST-HAVE APP FOR ANY REAL ESTATE AGENT WHO NEEDS TO CALCULATE LOAN AMOUNTS AND REVERSE MORTGAGE POTENTIAL FAST!

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