| First a reverse mortgage is a lump sum payment or annuity that is
paid from a lender or
insurance company to supplement
or provide income. As the homeowner
you repay the mortgage obligation when
you sell or vacate the residence. When
you die your estate is responsible to
pay back the loan. The amount owed will
never exceed the value of your home.
If the home is sold and the proceeds
exceed the amount owed, the excess money
goes back to you or in the case of your
death, your estate.
Further, when you buy a home with a reverse mortgage it is not considered
taxable income and does not affect Social
Security or Medicare benefits.
A home equity loan on the other hand, is a mortgage loan that is secured
by the residual equity in your home.
To calculate equity, you subtract mortgage
debt from your home value. Home equity
loans allow a homeowner to make repairs
or other home improvements, refinance
other debt, or use for miscellaneous
purposes. Unlike a home equity line
of credit, a home equity loan is an
amortizing loan.
When you buy a home with a reverse mortgage you are paid
either a lump sum amount or annuity
based on the amount of equity in your
home. For example, a monthly payment
of $1,000 for the next 120 months would
be a 10 year monthly annuity.
Aside from
programs which help you buy a home
with a reverse mortgage there are
various other types of reverse mortgages.
One type is for homeowners who want
to tap into their equity but not draw
out the entire amount. Here an annuity
or lump sum would be paid out. Another
reverse mortgage program is a
home equity conversion mortgage. Affiliated
with FHA (the Federal Housing Administration)
this program combines the features of
a home equity loan and a line of credit.
Here you receive a fixed payment and
can also draw on a credit line for additional
cash.
The buy
a home with a reverse mortgage program
uses the new home as a source of repayment.
You make a down payment and use the
reverse mortgage loan for the
rest of the home's purchase price. You
repay the loan with interest and other
financing costs, when you sell the home,
no longer use it as a primary residence,
or in the case of your death, your estate
would cover the outstanding loan. Most
types of homes are eligible.
Tremendous
growth in the housing market over the
last few years has given many homeowners
a considerable boast in equity. As a
result, some of these homeowners are
now looking to buy a home with a
reverse mortgage.
Take
for instance, the homeowners who purchased
their homes in the early 1960's for
a modest price and now in their retirement
years find their home has doubled or
even tripled in value.
With
this kind of equity to play with many
homeowners are looking to buy a home
with a reverse mortgage. This could
be a country home or a cottage property.
Or, the funds could even be used for
luxury vacations, recreational vehicles,
boats - you name it!
If you were
to buy a home with a reverse mortgage
you would be able to pay cash for the
second 'vacation' home while continuing
to live in your primary residence for
as long as you wish or are able. Once
you die, your primary residence would
be sold to pay back your reverse
mortgage loan, while the second
home would become part of your estate.
To
participate in these reverse mortgage
programs, you and any co-borrowers must
be at least age 62. In order to buy
a home with a reverse mortgage
you also must have no mortgage debt
on your home. Further there are usually
no income requirements to participate
in the above mentioned programs.
According
to Fannie Mae, a positive feature
of reverse mortgage programs
is that you're never obligated for more
than the
loan balance or the value of the property,
whichever is less; no assets other than
the home are used to repay the debt.
A reverse mortgage has neither
a fixed maturity date nor a fixed mortgage
amount.
If you're seriously looking to buy a home with a reverse
mortgage it's important that you
do your homework. Take the time to comparison
shop between lenders. Seeking the advice
of at least three reverse mortgage
lenders is always wise.
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