New Reverse Mortgage Law Gives Home Buyers Another Option

By Tiag Vanrock

Seniors, sixty two and older, now have the option of purchasing their next home with a reverse mortgage. In fact, the reverse mortgage acts similarly to a traditional forward mortgage in this capacity. The borrower makes an adequate down payment, and the reverse mortgage lender funds the remaining balance, just as a forward lender would.

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.

Reverse mortgage lenders make money from the accrual of interest over time. When the last surviving spouse dies or the borrower chooses to sell the property, the original loan plus accrued interest is repaid to the bank.

The following are a list of steps to purchasing a home with a reverse mortgage:

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. At closing the borrower will be required to make a down payment between 25% to 55% of the value of the home.

4. Reverse mortgage lender funds the remaining principal balance. Borrower will have a choice of financing closing costs or paying out of pocket for them.

5. Title company or attorney records transaction and borrower takes ownership of the home.

6. The obligations to the mortgage are as follows: live in the home as primary residence, keep the property in reasonably habitable condition (per FHA guidelines) and pay property taxes and home owners insurance.

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.

About the Author:

Much more info about the reverse mortgage in Texas and everywhere else at The Quintessential Guide to the Reverse Mortgage in Texas. Down and dirty questions answered at Purchasing a Home with a Texas Reverse Mortgage.