Doug Digs Real Estate

by Brandon Cornett

If you are a senior citizen over the age of 60, and you own a home, I’m willing to bet you’ve been hearing about reverse mortgage loans lately. But why is this lending option so popular among seniors lately, and how does it work anyway? Let’s take a look.

What is a Reverse Mortgage Anyway?

It’s a type of loan that is made against that value of your home. In this way, it’s similar to a home equity loan. But the similarities end there. With a reverse mortgage, the borrower does not have to pay the loan back for as long as they live in the home. So in essence, it’s a way for senior citizens to convert the value of their homes into cash, and without having to repay it right away.

This unique lending option is typically aimed at senior citizens who own their own homes. In fact, the HUD reverse mortgage program (one of the first of its kind) actually has a strict age requirement — applicants must be at least 62 years old for this federally insured program.

As of this writing, the HUD program is one of the most popular. In addition to being 62 or older, applicants for a HUD reverse mortgage must either own the home outright or have a low mortgage balance that can be paid off at closing (with part of the proceeds from the loan).

How Much Can I Borrow?

Here again, the amount will differ from one lender to the next. But in general, the amount you can borrow on this type of mortgage will depend on several factors:

1. Your age
2. The current interest rates
3. The appraised value of your home

This means that people who are older, who have more valuable homes, and who borrow when rates are lower will qualify for a higher amount (generally speaking, of course).

When Do I Pay It Back?

First, keep in mind that the exact details of a reverse mortgage will vary from one lending institution to the next. In most cases, you do not have to pay anything back until (A) you die, (B) you sell the home, or (C) your move out of the home.

In other words, the loan will have to be paid back when the home is no longer your primary residence, for whatever reason. When one of these conditions has occurred, and the loan repayment is due, you (or your estate) will have to repay the amount borrowed plus any lending fees.

Increasingly Popular Among Senior Citizens

The number of reverse mortgages has been rising steadily over the last few years. One reason for this is that there’s a larger pool of potential borrowers each year, because the number of seniors 62 and older is increasing (better medical treatment, better health, etc.). Another reason for the growing popularity has to do with good old-fashioned marketing. The lenders that offer these programs have been pretty active in their marketing efforts lately.

As a result of these and other factors, the number of seniors pursuing this lending option has increased significantly over the last few years. For example, from 2005 – 2006 there was a 56% increase in the number of reverse mortgages granted to senior citizens in the United States.

About the Author: Brandon Cornett is the publisher of the Home Buying Institute, which offers helpful advice on types of mortgage loans. To learn more about the reverse mortgage for senior citizens, please visit http://www.homebuyinginstitute.com/reverse-mortgages.php

by Brandon Cornett

It’s no surprise that so many Americans are looking for ways to buy a home with a low down payment.

After all, with so many other costs associated with a home purchase — like closing costs, furniture, moving expenses, etc. — coming up with a large down payment isn’t always an option. So the idea of buying a home with a low down payment can be very appealing to many buyers, especially first time home buyers.

Many people mistakenly believe that a down payment of at least 20 percent is required in all mortgage scenarios. This is the way things were for a long time. But these days, there are more flexible loan programs and terms available to home buyers. In fact, some mortgage lenders will extend loans to qualified buyers with a down payment as low as 5 percent of the purchase price.

Generally, a mortgage loan with a down payment of less than 20 percent is referred to as a low down payment mortgage loan.

But like all things in life (and in home buying), there are special conditions to buying a home with a low down payment. For instance, many mortgage lenders who grant loans with such a low down payment usually require that the loan be insured in some way. This insurance is aptly called mortgage insurance.

Mortgage Insurance for a Low Down Payment
Mortgage insurance is just what it sounds like — insurance on a home mortgage loan. This type of insurance protects the lender financially in the event that a homeowner defaults (ceases to make payments) on the mortgage.

Mortgage lenders usually require mortgage insurance on loans with a down payment of 20 percent or less. In other words, some form of mortgage insurance is almost always required for a low down payment mortgage. The home buyer is usually required to pay the cost of this mortgage insurance.

Two Types of Mortgage Insurance – Government and Private
Let’s recap what we have covered so far. We know that it’s possible to buy a home with a low down payment, and that a 20 percent down payment is not always necessary. We also said that most lenders who offer mortgages with a low down payment (below 20 percent) will also require some form of mortgage insurance. Thus, buying a home with a low down payment almost always requires mortgage insurance.

With that straight, let’s talk about the two types of mortgage insurance — governmental and private.

Government Mortgage Insurance
Government-backed mortgages are usually insured by one of three federal organizations. These mortgages are either insured by (A) the Federal Housing Administration, or FHA; (B) the Department of Veterans Affairs, or VA; or (C) the Department of Agriculture’s Rural Housing Service, or RHS.

Each of these agencies has its own criteria for the types of loans they will ensure. For example, the VA Home Loan program only applies to military veterans or their spouses, and RHS loans are usually reserved for people in rural areas.

The FHA requires a minimum down payment of 3 percent. They also limit the loan amount that they’re willing to ensure based on geographic area.

So this is governmental path to buying a home with a low down payment. When you obtain a mortgage loan backed by one of the federal organizations listed above, you can make a down payment less than the traditional 20 percent.

Private Mortgage Insurance
In addition to the three governmental options above, there are also private companies willing to insure mortgage loans. This too can be a path to home buying with a lower down payment. Private mortgage insurance is aptly referred to as PMI. Private mortgage insurance is available to a much wider audience than the governmental options listed above. For instance, there are no restrictions regarding military service or rural residence.

Private mortgage insurance, or PMI, is available on a wide variety of low down payment home loans and there is no pre-determined limit on the loan amount (as there usually is with the government-backed mortgage loans).

Conclusion
These days, it is certainly possible to buy a home with a low down payment. In this context, “low” refers to a down payment of less than 20 percent. These types of home loans require some form of mortgage insurance, either government insurance or private mortgage insurance (PMI). Here are some resources to help you learn more about home buying with low money down.

About the Author: Brandon Cornett publishes a network of websites related to home buying and mortgages. For more tips on buying a home please visit the Home Buying Institute at http://www.homebuyinginstitute.com