Reverse Mortgage Loan Blog

The problem: I am 67 and rent an apartment. Recently I inherited about $200,000, so I’ve been thinking about buying a small house in the $300,000 range where I could retire more comfortably. I live on Social Security and a small pension. Could I qualify for a reverse mortgage?

The expert: Dennis Haber, Garden City attorney and author of “Piggy Bank Your Home”

The rules: A reverse mortgage is a government-insured loan known as an HECM (Home Equity Conversion Mortgage), which provides money you will not have to pay back during your lifetime. Recent legislation now permits the HECM program to be used for purchases, and the U.S. Department of Housing and Urban Development has changed its regulations to allow such transactions as of January 2009.

The strategy: While reverse mortgages are used by many cash-strapped seniors as a way to stay in their homes, these mortgages can provide you with this opportunity to buy the house you want. No monthly mortgage payments need be made. The HECM applies to the purchase of existing homes as well as new construction – but not co-ops.

How it works: Three things will determine how big a mortgage you can qualify for: age (you must be at least 62); value of the home, up to the limit of $417,000; and the expected interest rate. In this case, however, you will have to prove that you have the funds to cover the difference between what you can realize from the reverse mortgage and the contract price, plus closing costs. The source of your funding becomes critical. Bank statements will be reviewed. Recent big deposits will need an explanation. Gifts, seller concessions, seller financing and subordinate financing are not permitted with these HECMs.

The results: Based upon your age, current interest rates and $300,000 sales price on the home, you should be able to realize about $177,000 from the reverse mortgage. You will need a little more than $127,000 to cover the contract difference plus closing costs. You should also consult a financial adviser to determine whether purchasing a home with a traditional mortgage is a better option.

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