This page is for people who still owe on their mortgage. Click the button above if your house is paid off.
With a traditional reverse mortgage you can access some of the equity in your home, depending on how much you still owe (and you must have at least about 60% equity). With a government backed reverse mortgage for purchase, the amount available to you is always two times your equity regardless of what you owe.
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With either mortgage, you must retain about 50% equity in your property. But the reverse mortgage for purchase multiplies the amount available to you to invest to create a lifetime of cash flow. Here's an example comparison of the reverse mortgage and the reverse mortgage for purchase for those interested in generating cash flow through real estate:
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Let's assume your home is worth 300K and you still owe 100K. With a traditional stay in your existing home reverse mortgage, the amount of money you can draw is limited by the requirement that about 50% equity remain after the loan is fully drawn. In this example, because you still owe 100K, you can draw about 50K and have the required 50% equity-or 150K of equity in a home worth 300K.
With a reverse mortgage for purchase, you can put all of your home's 200K equity to work while having the required 50% equity. You can sell your existing home and put the entire 200K of equity down on new property worth 400K that can include a new home and investment rental property. The rental property portion could account for 150K or more of your new property-considerably more than the 50K available with the stay in your existing home reverse mortgage. The rental property portion will provide you with ever increasing cash flow for the rest of your life with no interest or principal payments on your rental property-or your new home-for life.
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You are not limited to using the equity in your home for the 50% down. You can put the about 50% down however you choose. Practically everybody age 62+ who can put the about 50% down qualifies for this government backed loan that has no interest or principal payments for life. The loan is paid back only with the value of the property when it is sold.
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Your rental units are trouble free. The management company handles everything. They collect the rent, pay the expenses and send you the proceeds.
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So what's the catch? You must buy a new home and the rental units must be attached to your new home. The most common home with an attached rental, the duplex, isn't popular:​
pGroup Privacy Housing
Above: Homeowners don't want to see or deal with renters.
Below: My patented homes with hidden attached rentals eliminate those issues. You never see or interact with your renters. The rentals are managed by a professional management company.​ Your renters have a separate entrance to the community at the rear of the property. The rendering below shows a one story owners ranch home with two rental units above each owners home. There is an option for a full finished basement for you. The renters outdoor area is shaded red. A wall separates the owners and renters outdoor areas. You'll never see or interact with your renters:
The management company handles all rental concerns. They collect the rent, pay the expenses and distribute the rental income equally to the owners of the community regardless of each units vacancy. The risk of vacancy is spread between all the owners insuring minimal cash flow interruption for each individual owner.
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The only way to default on a reverse mortgage for purchase is to not pay your property taxes, maintenance and insurance. The management company will pay those expenses before distributing the proceeds-assuring no defaults.
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​Below is a top down view showing that the renters have a separate car entrance at the back of the community. The renter car entrance and outdoor area is shaded red. It is separated from the owners outdoor area (green) by a barrier. Owners and renters never encounter each other. Each owner has a private side yard and patio which functions as your back yard:
Below shows that the front of your home looks like a single family two story home:
Below is a view of the rental units at the back of the property. The rentals are on the second floor and have a balcony as well as a fenced in area at ground level. They also have a one car attached garage. They are high quality rental units to attract premium renters.
With either the traditional stay in your existing home reverse mortgage or the move into a new home reverse mortgage for purchase, you are required to have about 50% equity in your property. With the reverse mortgage for purchase, you get a new maintenance provided home and rental property that provides a lifetime of ever-increasing cash flow.
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You are not limited to using the equity in your home to finance with a reverse mortgage for purchase. You simply need to put about 50% down on the new property however you choose.
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Most rental property investors borrow money and pay interest and principal payments. Without the outflow of those payments, your cash flow will be considerably higher than traditional investors.
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This income won't count against your Social Security. Social Security only counts income from employment towards the retirement earnings test. Other kinds of income — including income from rental properties, lawsuit payments, inheritances, pensions, investment dividends, IRA distributions and interest — will not cause benefits to be reduced.
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The reverse mortgage for purchase is technically called the Home Equity Conversion Mortgage For Purchase (HECM FP). It can be used to buy a single family home or a 2-4 unit property. The owner must live in one of the units. The youngest borrower must be at least 62 years old (I categorize age 60 as it will be at least 2 years before this project will be for sale). You must pay your property taxes, insurance and homeowners association or condo fees (if any) and keep up on maintenance.
I am not a mortgage lender or financial advisor.
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See the "Transition" tab for transitioning to my new property without the need to sell your existing home first.