If you are over 62, you need to take a serious look at the FHA reverse mortgage program. I have always loved this idea for seniors who are on a fixed income. However, in the past, the closing costs were nearly twice what they are now, which was a deal-breaker for most. Also, in my mind there hadn’t been enough time to see how this program would pan out in the end sale and there were concerns about what would happen if there was a shortfall in equity.
Tax-free monthly income forever
After doing a lot of research for a senior relative and spending hours with a local reverse mortgage expert, I came away pleasantly surprised. Nearly everyone can benefit from this program. It may save some senior homeowners from foreclosure, it can fund capital improvements such as a roof or air conditioning and/or it may create a sorely needed source of additional monthly income. The program brochure I have states that Social Security, the IRS, and Medicare do not consider equity disbursements as income in most cases. It may even be a pretty neat investment opportunity.
MIP pays any shortfall
This is what clinched it for me. This program requires Mortgage Insurance Premium (MIP), which serves two important functions. It protects the homeowner from the lender going under (remember, the lender is paying you) and it protects the homeowner in the event that the home is worth less than the mortgage when the sale takes place.
Here’s how it works: Based on your age and the value of the home, it is determined how much initially you qualify for. The funds used and accumulated interest are added to the mortgage balance. Rest assured, the equity position is never reviewed again until the sale. The balance is due 12 months after the last of the qualified owner(s) moves out or at the time of the eventual sale. If the balance of funds drawn is more than the eventual sale price, the MIP pays the difference. If the property is worth more, the net profit after your customary selling expenses is yours or your heirs. It’s a win-win.
Reverse mortgage for purchase
Here’s a rough example, if you qualify: Instead of paying cash for a new $200,000 home, you can keep $100,000 in the bank, take a $100,000 reverse mortgage and let the equity feed the payment. Or you can put that $200,000 down on a $400,000 home and have zero payments. Have you always wanted to live on the wide water or maybe a beachfront condo? Purchasing more than twice your current value with no monthly payments is an incredible investment vehicle in this devalued market. The current maximum is $625,000 for purchase price.
While I used 50 percent in the above scenarios, the mortgage amount or percentage of value allowed and/or monthly income is based on your property value and your age. There are no income, credit or employment requirements.
Do you have questions about buying, selling or saving your home? Sarah Pietkivitch can be reached at RE/MAX of Stuart, 729 S. Federal Highway, Stuart. She can be reached (772) 288-1029. Visit http://www.sarahsellsflorida.com
Tax laws and lender fees may change or vary, so shop around and get advice from your trusted professionals. As always, consult your attorney, financial adviser or tax accountant before deciding what type of investment or financial plan specifically meets your needs.
Sarah Pietkivitch is a broker associate for RE/MAX of Stuart. She holds a degree in real estate and is an Accredited Buyer Representative Manager(ABRM)