The basic way this plan works is by offering home buyers a chance. It gives the opportunity for someone to purchase a home, when they can’t qualify for a loan. Their goal must then be to be able to qualify for a loan before there times runs out. The benefit of this plan is so that they can build some credit or build equity in the time being. Some people believe if they pay their monthly rent on time, their credit rating would increase, this is not the case. Rent payments don’t effect credit ratings. If they have credit cards and other loans, they should set their mind on that and continue to make timely payments. The buyer should be aware of everything. The buyer should read and understand all documents prior to agreement and signing the documents. This one mistake has lead to many problems in the past, giving the buyer a bad situation to handle. There can be some benefits for the seller as well, if they pursue a lease purchase plan to sell. If they are not desperate on cash and can hold onto the property, they can take up this option. The seller will be bale to earn the “lease purchase fee” & “rent premium payed monthly”. An top if this great advantage, they will be given a tax reduction on their monthly mortgage interest payments, which is extremely overwhelming. Keep in mind, this is only for the set period of time.

A lease purchase can also be defined as a plan which allows you to lease a home, with the ability to purchase it with-in a set period of time. The time frame will usually be in the first three years and the price will be agreed upon in the agreement signing in the commencement. There is a down payment which will be required in the commencement, which is usually in between 1% and 5%. The buyer will be paying a rent and a rent premium to control the purchase. This type of a deal can be made so that the buyer/seller will profit.

Should I Rent or Buy?

As you know reverse mortgage is something that is only available to seniors who are over the age of 62 and are eligible. There are two main types of mortgages that are categorized under reverse mortgages. These are called Home Equity Conversion Mortgage (HECM) and Non - Home Equity Conversion Mortgage (Non-HECM). Firstly, we will talk about the HECM plan, and how it works.

Basically, the HECM allows an eligible senior to pull out money from the existing equity in their home in the following modes; monthly payments for life or a term, one bulk payment, or in a LOC. The main reasons why elders would take upon this opportunity is to be able to purchase a home. As most other loans, you have to be eligible. To be eligible you would need to own your home, or atleast have a low remaining balance on the existing mortgage, this way you can pay it off at closing. You must be at this location for your lifetime, if you sell it or default, the lender has has the obligation to request a repayment of the money taken out. In the recent years, mortgage brokers/advisers have noticed that seniors have been victims of some fraudulent schemes carried out by some institutions. Due to this problem, some reputable institutions would send their clients to certain education courses, where they will be taught about some very useful information.

The following factors are taken into account when calculating the total amount given; the age of the client, the home’s present value and the interest rate. The borrowers have certain options which will allow them to pick how they want payments made.

1. The borrower will get payments every month until the end of his lifetime as long as he will abide all regulations.
2. The borrower will get payments every month for a fixed time period set at the beginning.
3. The borrower will get a line of credit, which will enable him/her to make unlimited withdrawals.
4. Option 1 + Option 3
5. Option 2 + Option 3

The fee’s for a HECM reverse mortgage range anywhere between $2500 and $6000. It usually depends on the homes value and the loan lender will take a certain percentage of that value.

Now onto Non-HECM loans, they are very similar to HECM type loans. However, there are certain differences. The good thing about this type of loan is that the limit is much higher when compared to a HECM loan. Now, every good thing comes with a tag attached that reads “Disadvantage”. The disadvantage is that they aren’t covered federally, which means they will cost more.

A reverse mortgage is a type of loan which is available for seniors. This type of loan is used to take the home equity value out of a property in one bulk payment or in multiple payments. In simple words, you are turning the equity in your home into solid cash. This allows you to take out a loan against the equity in your home and you don’t have to repay the loan for the entire lifetime until you reside in the home and do not sell it. This is the best solution if you would like to increase the money for your retirement and don’t want to make monthly mortgage payments. In a reverse mortgage, the loan lender will be making monthly payments according to a percentage of the value in the property/home. Eventually, the lender will sell the home to recollect the money spent, once you do not occupy the home. There are different types of reverse mortgages available and some of them have a common theme. The following are common features found in these types of reverse mortgages.

• If you are a senior, the chances of acquiring a higher loan amount would be very high.
• You must pay off all other debts you may have. The only debt you should have must be the reverse mortgage.
• The cost of financing will be included in the total value of loan.
• The lender has the right to ask for a repayment in the case you do not occupy the home, or if you do not pay taxes or perform bankruptcy. You can not add another person in the home owner title of the home.

Certain types of home apply, such as a single family home, 2 to 4 unit properties, a home built after 1976, condominiums and townhouses. What you need to qualify for a reverse mortgage; be of 62 years of age, own a home and have enough equity in the home. Learn how you can increase equity in your home while young. Types of reverse mortgages available; HECM Loans, Non-HECM Loans, CHIP Loans. We will be discussing about these types of loans in another article entitled “Types of Reverse Mortgages”.