Can I Buy a House with a Reverse Mortgage?
Many senior homebuyers (62 or older) are turning to reverse mortgages as a financing tool to purchase new property. This may seem a little unusual at first because of the general misunderstanding of reverse mortgages but it’s true, you can buy a house with a reverse mortgage. The process is exactly the same as if you were to purchase a home with a traditional or forward mortgage. Escrow is opened, the buyer submits a down payment and the mortgage completes the sale.
The buyer is now the new owner and holds title to the property. And because it’s a reverse mortgage, the buyer(s) never has to make a single monthly payment as long as they live in the house or condo. That is how a reverse mortgage works.
Like everything in life there are some inherent downsides to reverse mortgages, so they are not right for every situation. When considering this financing alternative, it helps to keep in mind that a reverse mortgage is a mortgage or a loan and just like any normal or standard forward mortgage it is secured by a deed of trust which is recorded. The key difference between the two mortgage products is HOW and WHEN that loan is paid off.
With a traditional mortgage (conventional, FHA, VA) P &I payments begin immediately on a monthly basis following the purchase. In contrast, with a reverse mortgage, payment isn’t due until the property is sold by the borrowers or when the borrowers die and then the loan has to be paid IN FULL by their heirs through refinancing or selling the property (read here about how long do you have to pay a reverse mortgage off after death). And just like any loan, interest is accruing until the loan is paid off. Also with a reverse loan, a higher down payment is required if you want to buy a house with a reverse mortgage.
Typically, seniors who are downsizing after the kids have grown find this a useful tool. They sell the family house, put down 40 percent on a new condo (instead of buying in full) and then use the extra cash to enjoy life and never make a mortgage payment. There are other technical issues and qualification criteria but that is why it is important to obtain a good loan officer who can walk you through the process. Loan officers can help you understand the pros and cons of reverse mortgages.
For more information and guidance on how you can buy a house, or condo with a Reverse Mortgage just give us a call at 1-888-987-3837 or calculate now and see what kind of reverse mortgage you can qualify for with our simple reverse mortgage calculator here.