Reverse Mortgage For Primary Home Purchase
Some senior home owners (age 62+) and most of their real estate agents know that Reverse Mortgages can be used to fund retirement expenses of any kind without the obligation of monthly payments that would be required with normal mortgage loans. The typical transaction is refinancing the current primary residence.
The new twist is to use a Reverse Mortgage to purchase another residence. Many mortgage lenders are now offering this option that will assist many seniors in their retirement years or times of reduced income. The new purchase must be for a primary residence. The current residence may be sold or kept as a rental property. The equity required when using a Reverse Mortgage for a home purchase can not be from borrowed funds or a gift. Most of the time, the needed equity would come from the profit on the sale of the previous home or the disposition of other assets.
If a Reverse Mortgage is used to purchase a newly constructed property, an occupancy permit will be required within 60 days. Counseling, which may be by phone, is an underwriting requirement and the fee is usually in the range of $125. Some lenders require a deposit in the range of $350 at the time of application to cover the cost of the required appraisal. Since most of the borrowers will be totally new to this process, it is important to have a good relationship and line of communications with the loan officer. The full amount of the reverse for purchase proceeds must apply to the transaction. There are more options for the use of the funds when a Reverse Mortgage is used for the refinancing of the current residence.
This is a new program, so the lenders are learning the process along with the borrowers. It is important to restate that borrowed funds may not be used for the equity requirement. For example, if the borrowers wanted to use a home equity line of credit on the present home that will be rented or sold at a later date, the FHA requirements do not allow that financing to meet the equity requirement.
Prospective borrowers need to know that there are NO INCOME and NO CREDIT SCORE requirements for the Reverse Mortgage programs. The determining factors are the minimum age of 62, the appraised value of the home and the interest rate quoted by the lender. Many seniors simply will not qualify for normal refinancing programs or purchases using regular mortgage loans which have strict underwriting requirements relating to credit and income.