We usually think of a reverse mortgage as a way to help people over 62 use the equity in their homes to upgrade their quality of life. But what if they want to buy a new home?
Last week I spoke with a retired couple who want to downsize to a ranch style home because their tri-level home is too big and has too many stairs. The current house payment is almost $1,500 a month with over 20 years before it is paid off. Even with excellent credit and ample cash reserves, their income is not sufficient to qualify them for the loan they needed.
The solution is a reverse mortgage for a purchase. Equity in their present home is estimated to be over $100,000. This will be used for the down payment and closing costs on the new home. The down payment is calculated based upon the age of the borrowers. On the new home they only need to pay property taxes and insurance. Quite a drop from the $1,500 they were paying!
Many of the guidelines for a purchase reverse mortgage are the same as if a homeowner is doing a reverse mortgage on their existing residence. Reverse mortgages are only for a primary residence, as long as the borrower lives in it. The property may not be a second home or rental. Credit and income ARE NOT considered. The borrower(s) must take an approved counseling class.
With the current mortgage market madness it is refreshing to provide borrowers with a mortgage that is better for them than what they originally wanted.
