How to use a Reverse Mortgage.
There are basically three situations that reverse mortgages work in:
1. Most commonly, the reverse mortgage is used to refinance your home. You can replace your existing mortgage with a reverse mortgage and remove your principle and interest payments for the rest of your life. If you currently have a reverse mortgage, you can refinance to get access to additional equity.
2. You can finance your home in the event you owe nothing on it. This gives you access to the locked up equity in your home. I agree it is nice to have the home paid for, but there is a resource that can enhance your retirement with virtually no risk.
3. It is also possible to purchase your new home with a reverse mortgage. With enough money down, you can buy a home with a reverse mortgage and have no payments. Maybe you are downsizing and you don’t want to spend all the equity from your last home. You can put 25% – 50% down, depending on your age, and you will have no payments while preserving some of your cash on hand. If you would like more information on homes available for purchase, see our sister company Redwood Real Estate Sales.
Reverse Mortgage Refinance.
Refinancing is the most common use of a reverse mortgage, but there are always questions that need to be answered. Here are a few:
1. Can I refinance my reverse mortgage?
Yes you may. A reverse mortgage is like any other loan. you can refinance any time you choose. Because of the fees associated, you will need to make the determination of whether or not it is worth it to you. If you are refinancing out of a HECM reverse mortgage, you will not have any prepay penalty.
2. Why would I refinance my reverse mortgage?
One of the biggest reasons that refinances are happening today is because the lending limits were recently raised. Now, instead of a county by county lending limit, it is nationwide at $625,000. So the easy test to see if this works for you is if you were unable to use the full appraised value of your home, (you were capped by the lending limit) you may be eligible to get additional money.
3. Is it a refinance if I don’t owe anything or never had a loan?
Technically, no it is not. But it is easier to say refinance than to describe the situation. When dealing with brokers and lenders, just say “I want to refinance my home and I don’t owe anything.”
Another interesting fact is that when you refinance from a HECM reverse mortgage to a HECM reverse mortgage your fees are significantly less. This is because you do not have to repay the up front mortgage insurance that FHA charged the first time around.
Reverse Mortgage Purchase.
Purchasing a home with a reverse mortgage can be a great way to buy a home and not have a mortgage payment. The amount down required is determined by the age of the youngest borrower and the price of the home. Once you have found the home and you’re approved, you just take the down payment (plus fees) to the escrow company and sign the loan documents. Then you get a home, and you will never have a payment on the home as long as you live there.
You can buy a new manufactured home and have it placed on your existing lot also. By new, I mean a manufactured home that has never been set up on another property. It needs to be new from the dealer. A home that has been on the lot for a year or two is ok also. It just needs to never have been pre-owned.
Allowable Reverse Mortgage property types.
The types of properties that we can do reverse mortgages on are basically the same as any other mortgage. If you currently have a residential mortgage on your home, we can probably do a reverse for you. The following is a short list of eligible property types:
1. Double wide or larger manufactured homes, newer than 1976. There are some foundation requirements but if you don’t meet them, we can probably get it fixed for you with very little effort. More information on manufactured home reverse mortgages.
2. Town homes and condos. These need to be FHA approved. We will take care of this for you if it has not been done.
3. Any other single family residences. This includes up to four unit residences, as long as one of them is the one you live in.
If your property is used for income or zoned commercial, you should call us and see if we can get it done. This will add a degree of difficulty in completing your reverse mortgage, but we have completed them so it is worth calling.
If you want o see what you qualify for, take a look at our reverse mortgage calculator.