Wouldn't it be nice to have no mortgage payments AND collect rental income?
Yes, Virginia - there is a Santa Claus.
Reverse Mortgage. The reverse mortgage for home purchases is one of the most powerful tools available today for borrowers age 62 and over. There are a lot of misconceptions about the power of a Reverse Mortgage; however, when borrowers are educated and when used appropriately, it truly can be a solid way to purchase real estate.
Here is a brief summary of how a reverse mortgage works.
For a purchase loan, you will need a down payment of approximately 35%. The amount of down payment is based on the age of the borrower and the calculated life expectancy. Sounds a bit morbid; however, the life expectancy is calculated to determine the estimated amount of interest that will accrue on the mortgage during the expected life of the loan. The older the borrower, the higher the loan amount.
You will never have to make a mortgage payment! A reverse mortgage does not carry any monthly payments. All the interest that is due on the loan is simply added to the mortgage balance. When heirs inherit the property, they will need to pay off the mortgage at that time. If the balance on the mortgage exceeds the value of the home when sold, the heirs don’t lose anything because the lender covers the difference through the monthly mortgage insurance premiums. If the balance on the mortgage is less than the value of the home, the heirs will receive the remaining home equity as part of their inheritance. The heirs also have the option of paying off the mortgage and retaining the property.
A reverse mortgage does not carry any pre-payment penalties either. This means that the reverse mortgage can pay off the mortgage any time they want. When qualifying income is an issue a reverse mortgage may be the answer as well. Income and assets will be verified for the ability to maintain the home, ability to pay taxes and insurance as well as living expenses.
How a Reverse Mortgage can generate Rental Income.
What is not widely understood about a Reverse Mortgage is how it can be used to not only purchase a new home but how it can effectively be used to generate rental income as well. A Revese Mortgage insured by FHA can be used to purchase up to a 4 unit property.
While one of the units must be used as a primary residence (by the way that only requires that you live there at least 51% of the year full time) the remaining units can be rented out creating rental income - STILL REQUIRING NO MONTHLY MORTGAGE PAYMENT! Of course the rental income can be used to pay towards the mortgage or simply used as retirement income.
I have helped many seniors develop a sound reverse mortgage strategy that has helped them either purchase a new home or use their home to help fund their retirement. I always recommend bringing a financial planner into the process to make sure that the strategy goes along with their current planning.
A Reverse Mortgage can be a great strategy and if I can provide additional information, just let me know!
Make it a great day! Jody
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