Reverse Mortgage

[Janet Taylor]

I am considering using a Reverse Mortgage with the house I am in or selling it and using a Reverse Mortgage tobuy my next house.  I need more information and a better understanding of Reverse Mortgages in order to make a good decision. 

Can I live in my garage apt and rent out my house and get a RM?

If I sell my house and used a RM to buy another house how much could I afford if my figures are as below?

Cash.    $100,000

Income $  24,000

Credit Score. 650

Thank you for your help. 

[John Gray]

The reverse mortgage, more specifically the FHA-insured version of the reverse mortgage which makes up 99% of the market, has had a purchase option since 2008. You can use the reverse to purchase a new home and the reverse simply requires that you occupy the property full time within 90 days of closing.

A reverse can technically be used to buy up to a 4 unit property provided you reside in one of the units. Recent changes in qualifications makes this more difficult, and you are now required to show proof of history as a landlord on multiple unit property. Typically buying more than a duplex is going to be very difficult. The number one concern with buying a home with a mother-in-law suite is how it is zoned. If zoning legally allows you to have a two-unit property and this home meets current zoning/code requirements then you are fine. However, if you are buying a single family home with a mother-in-law, typically the MIL suite is not technically permitted with residential zoning. In the process you'll get an FHA appraisal done, if the appraiser notes a second kitchen you will have to prove multi-family zoning or the reverse won't go through...or you can rip out the second kitchen.

You'll be able to borrow 50-75% of the home's value, depending on your age.  50% at 62 up to 75% at age 80 or above.  You'll need to put the rest down in cash, and remember that closing costs are paid out of that 50-75% number.  So, $200,000 home, at age 62, you'll bring about $103k to close depending on your state's closing costs.

Make sure you get a lender that offers you the lowest available interest rates.  Currently the lowest available adjustable rate is a 2.00 margin plus the 30-day LIBOR, for a total of 2.17% today.  The better deal is the Annually adjustable, which is 2.00 plus the 1-year LIBOR index, for a total of about 2.6% today.  Important difference is that the Annual has a 2% annual limit on rate increases, and a 5% lifetime cap.  The monthly has no annual limit and a 10% lifetime cap...pretty big jump.

The fixed goes as low as 4.5% and as high as 5.18%. You should be able to get any of these rates with no origination fee or points. You will have to pay a 2.5% FHA Mortgage Insurance Premium which is mandatory on all FHA reverse mortgage for purchase loans.

Check around, look for a lender that does a lot of purchase loans.  I suggest checking the NRMLA website for the Find a Lender feature and check for someone who is a Certified Reverse Mortgage Professional (CRMP).  

Good luck!