Ask A Real Estate Agent: Why Would Anyone Want Something Called a REVERSE Mortgage?
What is a reverse mortgage?
Any good real estate agent should know about this option. The so-called “reverse” mortgage is formally known as a home equity conversion mortgage (HECM), and is an alternative financing source available to persons 62 and older. They must own their home outright or carry a mortgage small enough to be paid off by the proceeds. There are no income or credit qualifications, although homeowners are responsible for paying the annual taxes, property insurance and maintenance. No loans have to be repaid until the owners move or die, in which case the bank takes its share and anything left goes to the heirs. However, if the owner fails to pay insurance and property taxes, the reverse mortgage, like any mortgage, can be deemed in default, with foreclosure a possible outcome.
Any real estate agent asked to take a listing for real estate for sale from a senior should have this in their arsenal to offer. It can open the door for folks who might not need to sell or, if they are buying, might not be able to get traditional financing (because there are no income or credit requirements).
Within the reverse mortgage for purchase or HECM, seniors are able to buy a home using some of their own funds as a down payment in the transaction, and the rest is financed through a reverse mortgage. For example, for a $250,000 home, a 67-year-old senior would have to bring approx. $130,000 to closing. The remainder would be provided through a reverse mortgage with no monthly payment. There’s no income requirement, no obligation to make a payment. The loan is paid off by the estate or the heirs upon the sale of the home or when the senior moves out.
Who Offers It?
There are many sources for this type of loan but there have been issues in the past with some of them and a bad reputation resulted. Now there is a government option. For more information about the reverse mortgage program offered through the Federal government, click here: http://www.ncoa.org/news-ncoa-publications/publications/ncoa_reverse_mortgage_booklet_073109.pdf
What Are the Risks?
AARP gives good advice on when and when NOT to take a reverse mortgage. They say: If you want to take a dream vacation, a reverse mortgage is a very expensive way to pay for it. If anyone is trying to sell you something and recommending you use a reverse mortgage to pay for it, that’s generally a good sign that you don’t need it and shouldn’t be buying it.
Also, these loans can have higher costs initially than a regular mortgage, and the amount you owe grows larger every month. The younger you are when you take out a reverse mortgage, the more the compound interest will grow, and the more you will owe. So real estate agents should advise that these are best for the older homeowner.
But for the right situation, a reverse mortgage can be a lifesaving option, and one that every real estate agent should know about. Sage Realty, LLC professionals can help you decide whether or not a reverse mortgage option is right for you. You can also find out what our real estate agents have to say about mortgage rates here: https://www.findahomeinpa.com/buyer-resources/articles/sage-advice-mortagage-rate/.