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czarina
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Anyone here knowledgeable about using a reverse mortgage to purchase a home?

I am just starting to look into this. It seems like a good fit for us, but of course you don't know what you don't know.

What are the pitfalls?


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Posts: 21228 | Registered: 18 May 2005Reply With QuoteReport This Post
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Reverse mortgages are used to access equity in a home you already own. Basically what happens is the loan company buys from you a certain portion of the equity you have and returns that money to in monthly payments.

I can’t see how you could use one to buy a house.


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Posts: 34709 | Location: Hooterville, OH | Registered: 23 April 2005Reply With QuoteReport This Post
Minor Deity
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Pique, are you thinking of using the monthly income from reverse-mortgaging an existing home to fund the monthly mortgage payments for another home, perhaps as a way to slowly shift the equity from one property to another?


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Posts: 12663 | Registered: 01 December 2006Reply With QuoteReport This Post
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What Steve said. It’s a way to cash out your equity, for someone who needs the money and doesn’t want or need to leave an inheritance.

The risk is outliving the mortgage.
 
Posts: 45708 | Registered: 20 April 2005Reply With QuoteReport This Post
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quote:
Originally posted by QuirtEvans:

The risk is outliving the mortgage.


Some reverse mortgages will allow you to have a “life estate”, meaning you can live in the house after the money is gone. I’ve seen a couple of different arrangements regarding accruing interest once that happens.

Recently I’ve heard advertisements for companies that will buy your house and rent it back to you. Not sure how those deals are structured.


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Posts: 34709 | Location: Hooterville, OH | Registered: 23 April 2005Reply With QuoteReport This Post
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Reverse mortagages that permit the owner to remain in the house for life are uncommon in the US.
They were more common in France, but I read that too many people were living too long to make them profitable.


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Posts: 25616 | Location: Still living at 9000 feet in the High Rockies of Colorado | Registered: 20 April 2005Reply With QuoteReport This Post
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I hadn't heard about this until I went sniffing for info on buying a home with a reverse mortgage.

quote:
Can I use a reverse mortgage loan to buy a home?

Yes. There is a “Home Equity Conversion Mortgage (HECM) for Purchase” loan that allows people 62 and older to purchase a new principal residence with HECM loan proceeds.


https://www.consumerfinance.go...o-buy-a-home-en-238/

Maybe this is what pique is referring to?


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Posts: 37529 | Location: Somewhere in the middle | Registered: 19 January 2010Reply With QuoteReport This Post
czarina
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quote:
Originally posted by wtg:
I hadn't heard about this until I went sniffing for info on buying a home with a reverse mortgage.

quote:
Can I use a reverse mortgage loan to buy a home?

Yes. There is a “Home Equity Conversion Mortgage (HECM) for Purchase” loan that allows people 62 and older to purchase a new principal residence with HECM loan proceeds.


https://www.consumerfinance.go...o-buy-a-home-en-238/

Maybe this is what pique is referring to?


Yes. In fact that is the first article I read about it.

I knew about the possibility because several years ago, friends of a friend sold their home in Texas and used the net proceeds as a 50 percent down payment on a 40 acre property here, with the bank paying the rest, in a reverse mortgage deal. They have no mortgage payment and were able to buy a much, much nicer place than they otherwise would have.

We are seeing prices going up so high where we want to live, we are now looking at this as one way we can buy. We have the 50 percent down. With all the extra monthly cash we would have by not paying a mortgage, we could buy more horses! Wink

And from what I have seen, you get to live in the house for the rest of your life, even if all the equity is gone. But that is unlikely to happen with normal appreciation.


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Posts: 21228 | Registered: 18 May 2005Reply With QuoteReport This Post
czarina
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quote:
Originally posted by Axtremus:
Pique, are you thinking of using the monthly income from reverse-mortgaging an existing home to fund the monthly mortgage payments for another home, perhaps as a way to slowly shift the equity from one property to another?


That's an interesting idea, but probably not feasible because of all the rules surrounding a reverse mortgage.


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Posts: 21228 | Registered: 18 May 2005Reply With QuoteReport This Post
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bogleheads.org is a great website for financial info. You could check out the discussions regarding reverse mortgages there...

https://www.google.com/search?...ogleheads.org&q=HECM


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Posts: 37529 | Location: Somewhere in the middle | Registered: 19 January 2010Reply With QuoteReport This Post
czarina
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thanks for turning me on to that forum. Here's a post from a discussion on reverse mortgages that is similar to how I am thinking:

quote:
There is another side to the HECM, and that is when purchasing a new home.

In this case, you may look at the HECM as an annuity for your house - you make a single lump sum payment up front and can live in the house until you die. There may or may not be any equity left in the house, depending on how much the home appreciates in value, but your estate also is not liable for any money owed either (a HECM is a non-recourse loan). If you are in your early-to-mid sixties, you are able to purchase a house on about 55 cents on the dollar. So, for about half the money, you have an "annuitized" mortgage - no mortgage payments and no debts to your estate.


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Posts: 21228 | Registered: 18 May 2005Reply With QuoteReport This Post
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This seems noteworthy:

quote:
Origination fees on regular and "reverse to purchase" HECMs are a killer. Unlike a conventional loan where the fee is based on the loan amount only, HUD permits an origination fee on a HECM up to 4% of the FMV of the real estate.

It pays to shop HECMs for the fees.


https://www.bogleheads.org/for...ewtopic.php?t=252635


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Posts: 37529 | Location: Somewhere in the middle | Registered: 19 January 2010Reply With QuoteReport This Post
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Interesting idea. There must be a secondary market for loans like this or banks wouldn’t make them.

I’d like to hear what Jon and Doug have have to say.


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Posts: 34709 | Location: Hooterville, OH | Registered: 23 April 2005Reply With QuoteReport This Post
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jon is the person from whom I learned about bogleheads. I'm eternally grateful!

Another thread that had some good info:

https://www.bogleheads.org/for...ewtopic.php?t=198157

And it referenced this:

http://www.theretirementcafe.c...r-using-reverse.html

Which in turn links to a bunch of other resources...


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We are all visitors to this time, this place. We are just passing through. Our purpose here is to observe, to learn, to grow, to love… and then we return home. - Australian Aboriginal proverb

Bazootiehead-in-training



 
Posts: 37529 | Location: Somewhere in the middle | Registered: 19 January 2010Reply With QuoteReport This Post
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“After the housing crash, the federal government moved to shore up big banks and increase their capital requirements, but those changes don't apply to the non-bank portion of the mortgage market where most reverse mortgages are held. Mortgages of all types may be riskier than we realize.”

Sounds to me like if the loan company goes broke, and the payments stop, there is nothing you can do about it. If so, that risk would be unacceptable to me.

Or does the FHA cover you at that point? Confused

Ten risks of a reverse mortgage


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Posts: 34709 | Location: Hooterville, OH | Registered: 23 April 2005Reply With QuoteReport This Post
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