What's the deal with everyone thinking a reverse mortgage is a bad thing? I think they are excellent! Especially, "Purchase Money Reverse Mortgages". For those who don't know what a Purchase Money Reverse Mortgage is, it's a mortgage in which you make no monthly payment on your newly purchased home. Instead of making a monthly payment the interest payment is added to the existing balance of the loan to be paid off after you die. The catch is "you must be 62 years or older to qualify" but the best part is "there is no credit check required". You simply must be over 62 years in age and have sufficient funds to make the downpayment. The downpayment amount varies pending the age of the applicant and the company processing the loan. Like all things there are drawbacks. The main drawback with a purchase money reverse mortgage is that your residence will not be paid for when you die so your hiers do not inherit a home free and clear of debt. Instead they inherit a home that has a reverse mortgage on it that must be paid off within 6 months. This means the hier will have to pay back the loan or give the house back to the bank so they can sell it for repayment. However, the hier does have the opportunity to file a one time 6 month extension. So in reality the hier can live in the house for up to one year without making a mortgage payment! Not bad in my eyes.
So let's look at an example of what a 62 year old man/woman could do if they take advantage of a purchase money reverse mortgage. For the sake of our discussion let's call our client "Dale". Dale is 62 years old and lives in Amelia. He decides that it would be best if he moved into Richmond to be closer to his brothers and sisters. Dale's current residence is paid for but the houses in Richmond cost more then they do in Amelia so he's not quite sure if he can get the house he wants in the City. Dale gives me a call to see if I can help. This is what I would tell Dale. Dale, I checked the value of your current home and it's worth $110,000.00 in our current market. I'm positive that I can find you a buyer at this price. After commissions and closing cost you should net roughly $100,000.00 even. Dale, to get a comparable house in the City it's going to cost you $150,000.00. Dales says, "Well, I don't want a mortgage payment at my age and I only have $100,000.00 to work with so I guess I either have to buy a smaller house in a not so great neighborhood or stay were I am". Not so fast Dale! We can set you up with a Purchase Money Reverse Mortgage and everything will work out just great, PLUS you will have cash in your pocket and NO MORTGAGE PAYMENT as well. So I take Dale to the mortgage specialist and run the numbers for him. They come out like this:
Dale = 62yrs of age
Money to work with from sale of existing home = $100,000.00
Purchase price of new residence Dale wants to offer on = $150,000.00
Downpayment required = 46% or $69,000.00
closing cost = financed in to mortgage roughly $12,000.00
Dale's figures: $100,000.00 from sale of existin home, est.
-$ 69,000.00 Down payment on future home, est.
cash leftover $ 31,000.00 cash left over, est.
Financed amount = $92,000.00 reverse mortgage amount, est.
So in the end, Dale has a new $150,000.00 valued house in the City just like he wanted. He has NO MORTGAGE PAYMENT to make each month as the interest is added back to the overall loan amount automatically each month to be paid of after he dies. Plus, Dale has $31,000.00 to do with as he pleases! I think Dale got a pretty sweet deal. Not bad at all.
Also keep in mind that the older you are the less downpayment is required so you are left with more of your money in your pocket. My point is, we live this life on a shoe string budget most of our lives. Why not take advantage of a purchase money reverse mortgage in our old age if we can and live like a King or Queen in our golden years? If I last that long, I promise you I'm taking advantage of this sweet deal!
If you would like to take a closer look at "Purchase Money Reverse Mortgages" for yourself or a family member feel free to give me a call or shoot me an email! I would be delighted to walk you through the process from start to finish.
As always, your referrals are welcomed and very much appreciated! :)
Lee Newcomb, Realtor
Long and Foster Realtors
804-327-1056
Lee.Newcomb@longandfoster.com
http://www.leenewcomb.lnf.com/
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