December 19, 2008
New Reverse Mortgage Law Gives Home Buyers Another Option
Borrowers, aged 62 and older, now have an additional financial tool to help them purchase that home they formerly thought was out of the budget. As of january 1, 2009 the government is allowing the reverse mortgage to be used the fund the purchase of a home, rather than just as a refinancing tool. The program works almost identically to any other home purchase with a mortgage. The borrower brings in adequate downpayment, and the mortgage company funds the loan.
This comes as a boon to some seniors as financial or credit restraints prohibit them from purchasing their next home. Now they can do so and are not obligated to make monthly payments the mortgage company.
In recent years, due to general need and national marketing by major financial institutions such as Wells Fargo and Bank of America the reverse mortgage has come into its own. Its major benefit to seniors is to allow the senior borrower to convert the equity in the home into cash to be used at the borrower’s discretion.
Only at the end of mortgage, when the home is finally sold, is the borrower or the borrower’s heirs obligated to repay the reverse mortgage company the original loan amount plus accumulated interest.
This is how the reverse mortgage purchase program works:
1. Borrower is to get a reverse mortgage approval letter from a HUD approved reverse mortgage lender. In conversation with the lender the senior will be advised as to the amount of funds necessary for down payment, closing costs, maximum purchase price, and reverse mortgage loan options.
2. Go home shopping and write contract based upon guidelines in the approval letter.
3. Borrower to bring closing funds as outlined in the approval letter. As stated this amount will be anywhere from twenty-five percent to fifty-five percent of the home value.
4. At closing, the reverse mortgage company funds the remaining balance and closing costs if desired by the borrower.
5. Title company or attorney records transaction and borrower takes ownership of the home.
6. The borrower is stipulated to live in the home and not use it as an investment property. The borrowers obligations are as follows: Pay taxes and home owners insurance, and keep property above FHA physical standards.
In the near future the typical reverse mortgage candidate will continue to be one in need of funds to relieve financial stress. The reverse mortgage purchase, however, will cater to a certain profile and offer a viable financial tool.
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