by Brian Burke
on Thursday, October 20th, 2016 at 5:16pm.
Reverse Mortgages to Buy a Denver Area Home
For seniors hoping to purchase a Denver area home, a reverse mortgage could well provide the ideal solution. Securing a reverse mortgage for purchase is the ideal way for Denver based seniors to fund the move into the property they need for their aging years without dipping into their existing equity or taking on additional loans that they simply can’t afford.
The most common way that seniors choose to use a reverse mortgage is simply to enable them to remain in their existing home. The equity that the reverse mortgage releases is then used to cover the expenses so common amongst the elderly, such as home modifications, medical expenses, and the cost of in-home care. However if your existing home is not fit for purpose, or if you simply fancy a change, then a lesser known
way of utilising a reverse mortgage is as a reverse mortgage for purchase: to fund the purchase of a new property.
A conventional Home Equity Conversion Mortgage (HECM) will allow homeowners to simply release the equity from their home, however a HECM for purchase, or a reverse mortgage for purchase, does require the home owner to make a cash down payment (just as they would with a conventional mortgage). When you choose to select a reverse mortgage for purchase, you start out with no equity because you don't own the new house yet. This cash down payment is generally around 50% of the property value of the home you are hoping to purchase: how you raise this money is up to you. This can be either from your savings, gifted from a family member, or raised by using the equity of your current home. However you cannot take out a reverse mortgage for purchase using borrowed money. Once you have raised and covered the 50% of the property value that you need, the reverse mortgage picks up the difference.
The Benefits of Choosing a Reverse Mortgage to Purchase a Denver Area Home
Uptake on the reverse mortgage to buy a Denver area home has been very slow, largely because many seniors simply don’t understand the benefits of the product, or how the product actually works. However, there are huge benefits to reap for those who choose to opt for a reverse mortgage for purchase: firstly, it is a great way to free up the equity you already have in your property. This means that you can decrease your monthly outgoings, increasing your monthly disposable income and therefore your quality of life, without having to spend any existing cash lump sum that you have, depleting your savings. It will give you the cash you need to enjoy your retirement when you need it.
For retirees that are rich in property but poor in actual cash, the reverse mortgage is an ideal solution. However it is important to bear in mind that whilst a reverse mortgage will enrich your quality of life, it will reduce the amount of equity you own in your own property, and will therefore not be the ideal option for retirees that are planning to pass their property on to their children or other heirs when they pass away.
Age is an Important Consideration
Your age when you make the decision to secure a reverse mortgage to purchase a Denver area home will affect the amount of money you can get from the loan. The older you are when you apply for the loan, the less you need to bring from the closing table and the more money you can get out of the loan to pay for your retirement expenses. However the longer the loan is in place, the more the existing equity in the property will decrease, meaning that the longer you have a reverse mortgage loan secured against your home, the less cash will be left to pass on to your children or other heirs at the time of your death.
When you choose to take out a reverse mortgage to buy a Denver area home it’s important to remember that you will still be responsible for paying for your taxes, property maintenance bills, and other associated expenses, so its important that retirees taking advantage of this type of home loan keep enough cash to one side in order to cover these additional expenses. This is particularly important to bear in mind for home owners hoping to use a reverse mortgage to purchase a larger property that will therefore have larger monthly expenses.
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Brian Burke | Broker | ePRO | Expert | 303.955.4220 Office | 303.710.2609 Direct | Brian@kennarealestate.com