As a homeowner, you might be looking for options on how to generate cash from your own property. According to data fromÂ the U.S. Census Bureau, the typical senior Americanâ€™s home equity is worth $130,000. If you are over the age of 62, you may be able to convert your home equity into funds when you need it the most.
Families turn to home equity for a variety of reasons such as home remodeling, healthcare costs, and unplanned living expenses. Even if you could get aÂ mortgage with good credit and savings, who would want agree to a big mortgage payment after settling down for retirement? That is why many financial advisers discourage debt at that stage of life. So how do you buy a home after retirement? Get a reverse mortgage.
With a reverse mortgage, you canÂ borrow against the equity of your propertyÂ without making a single payment. In addition, the interest of the home will be added to the principal and paid off when the house is sold. This will allow you to keep the loan as long as you live on the property, keep up with taxes, and maintain the appropriate insurance.
Hereâ€™s how to buy a home with a reverse mortgage.
Understand the Loan Purpose
The Home Equity Conversion Mortgage (HECM) was created to streamline home purchase transactions and cut costs. In the past, senior citizens would purchase a new home, incurring the closing cost, and then apply for a reverse mortgage on a new property. As a result, this would trigger new closing costs. With a reverse mortgage, you can settle all the costs into one transaction and another set of closing costs. However, you must be sixty-two or older to qualify for the loan.
Consider How HECM Will Benefit You
Most homebuyers are not aware of using a reverse mortgage as a great option. Normally, a reverse mortgage will convert the equity of your home into cash. Â One of the main uses of a reverse mortgage is to pay off a mortgage and remove all payments of your property. This will allow you to purchase another property and provide an adequate down payment â€“ without any monthly payments.
Qualify For the Loan
With the HECM for Purchase program, you will inform the lender about your plans of buying a new home using the reverse mortgage. The lender willÂ calculate the mortgage amountÂ that you are qualified to receive using the following:
- Down payment
- Appraised property value
- Current age
When you are qualified for the funds to purchase the property, you can live in the home as you would with a normal reverse mortgage. In fact, you will not have to make a payment while you live in the property.
Read Between the Lines
While you wonâ€™t have to pay the mortgage as you live in the new home, the mortgage must be paid when you or your spouse is no longer living on the property. However, it is important to note that all insurance and fees must be paid on time â€“ or the lender can foreclose.
Downsizing your home to purchase a smaller option is a great way for seniors to make the most out of their home equity build up. Not only does this help reduce the expenses of retirement, it will also provide more finances for a comfortable living.