I am close to 62 years old and am looking to purchase a home with a reverse mortgage. After escrow is closed will I get either a line of credit or payments from this transaction?
With a purchase reverse mortgage, most borrowers use all their eligible funds when they purchase the home and there are no funds left over to give them a line of credit from which they can draw or to pay them monthly payments.
For example, let’s assume that you are 62 today and are buying that home under today’s program. The loan that gives you access to the most funds today is the HECM LIBOR program.
Based on your age, the area in which you are buying and our normal fees (some lenders are higher), you would have to come into escrow with approximately $147,350 which would cover your fees and your down payment to close the purchase transaction if you wanted to use all the reverse mortgage proceeds for the purchase of the property.
The reverse mortgage would pay the rest of the amount required for the purchase but there would be no money left over for a line of credit.
If you wanted funds available in a line of credit or to make payments to you later, you would have to bring in more of your money for the purchase and use less of your available proceeds from the reverse mortgage to close the purchase transaction.
In other words, if you chose to bring in $247,350 to the closing, you would have to use $100,000 less of the reverse mortgage funds available to you and therefore, you could then opt to use those funds in a line of credit or as monthly payments.
As I started by saying though, most borrowers choose to use all of the proceeds available to them for the purchase and then there are no funds left for a line of credit or to make monthly payments to them in the future (but then you would have the extra $100,000 available that you didn’t have to bring in).
There are two caveats to this explanation though. The first is that if you choose the fixed rate reverse mortgage, the loan is a closed-end instrument and regardless of whether or not you choose to pay down any portion of the loan up to and including the full amount at any time, you can never re-borrow the funds.
In other words, you only get one trip to the well.
The funds are paid to you in one lump sum only and it is only available as a Saver Loan at this time. this means that you would have to bring in more money to close, approximately $171,500.