Americans have learned a tough lesson: Your home is not your piggy bank. However, there is a reward for those who did build equity in their homes: In their senior years, their home can provide a monthly stream of tax-free income, or a lump sum of cash to spend as they wish, while remaining safely in their home. Or it can provide a source of financing for a new, smaller home.
It's all done through a reverse mortgage.
For many seniors, a reverse mortgage is the answer to a prayer. It allows you to withdraw money from your home equity, tax free, with no requirement that it be repaid until you die or move out of the home. There is no way you can be forced out of your home as long as you keep paying your property taxes and insurance and maintain the property.
What you need to know about reverse mortgage for buyers, sellers
• Reverse mortgages are mostly viewed as a way to allow seniors to stay in the homes they love but can no longer afford. That monthly reverse-mortgage check can make all the difference when it comes to covering costs. But a reverse mortgage can also help seniors buy a new home.
• These days, many seniors are having trouble selling their current home and downsizing to a smaller home. And others, just entering retirement, are having difficulty financing the purchase of a new home, since they no longer have an income and don't want to put all of their savings into the purchase.
Here's where a reverse mortgage can help both buyers and sellers.
• Just go to www.Reverse Mortgage.org and use the calculator there to see the dollar amount of reverse mortgage you would qualify for, based on your age.
• For example, a 65-year-old could likely get about $240,000 on a reverse mortgage on a $500,000 home. That means a senior who wants to buy your existing $500,000 house needs to come up with only $260,000.
• The reverse mortgage would provide roughly $240,000 of the purchase price, with no monthly payments required. Now your old, larger home becomes more salable to someone with cash from the sale of an existing home.
• And once your home is sold, you can take part of the $500,000 sale proceeds, and use it -- along with some of your cash and your own reverse mortgage -- to buy your next, smaller retirement home. So, if you're age 75, and want to purchase a $350,000 condo, you could likely get a $230,000 reverse mortgage on that smaller condo. That means you'll have to put down only $120,000 in cash on your new condo, and you can put the remaining $380,000 from your home sale in the bank (or several banks).
Using a reverse mortgage to buy a home opens an entirely new dimension to this fascinating product.
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