Friday, April 17, 2009

What? You can BUY a house with a Reverse Mortgage?

Yes, it is true. You can buy a house with a Reverse Mortgage effective January 1st of this year. There are some qualifications.

You must be age 62 or you must be turning 62 within 6 months.
It must be your primary residence and you have to live in the home.
The loan needs to be from an FHA approved lender.

The example that I have in my book simplifies the explanation. Here it is again.

Assume the new home is for sale at $350,000. If you put approximately $123,000 down on the home, then you can take out a Reverse Mortgage for the difference. Instead of the buyer of the home using the money and spending it, the buyer immediately pays the seller the $227,000 Reverse Mortgage proceeds. The seller has received his full $350,000 via the $123,000 down payment plus the Reverse Mortgage proceeds of $227,000.

The buyer has a $350,000 home that they bought free and clear for all practical purposes for $123,000. It is true, that at the buyer's death, the Reverse Mortgage will be paid back. However, compare that to someone who thought their only option was to buy a house for $123,000. With the Reverse Mortgage Purchase Program, instead they can buy a much bigger house.

How to Use the Reverse Mortgage Purchase Plan in a Divorce Situation

Although I am not a fan of divorce, I do understand that it happens nevertheless. Now, I want you to think about how to use the Reverse Mortgage Purchase Plan in a divorce situation. Let us assume that a husband and wife have a $350,000 home with no mortgage and they are getting a divorce. They also have some investment assets of a few hundred thousand. Normally, the old way of handling this would be to sell the house and split the proceeds. Most often, the house may take a long time to sell and it may be sold at a value less than ideal.

Now there is a better option. The strategic planning that goes into this is as follows:

Take a regular Reverse Mortgage out on the existing home and split the proceeds 50/50. Assuming our same numbers above, this means that $227,000 would be split 50/50. The spouse moving out goes and buys a new home with their share of the proceeds. Then, the spouse moving out takes out a Reverse Mortgage on the new home. The end result is that one spouse stays in the home and has no mortgage payments and has $113,500 in cash, plus 50% of the investment assets! The spouse moving out buys a home for approximately the same value and has no mortgage payments, plus gets 50% of the investment assets, too! Both of them have $350,000 houses with no mortgage payments!

The old way was to sell the house and who knows how long that would take. This new way, the house does not have to be sold! It works beautifully for both parties. Tell your friends you heard it here first. By the way, this is the kind of information that you will find in my book.