Can a reverse mortgage be used to buy a home?

DEAR BOB: I heard there is a way to buy a house or condowith a reverse mortgage and not have to make any monthly mortgage payments. Isthis true? Is this a way for a senior citizen to buy a retirement home? –Mr.L.M.

DEAR MR. L.M.: Yes, a “reverse mortgage for homepurchase” is available from Fannie Mae. The two other major reversemortgage lenders, FHA and Financial Freedom Plan, do not offer these specialreverse mortgages.

Purchase Bob Bruss reports online.

A reverse mortgage for home purchase usually requires alarge, cash down payment, typically around 50 percent of the purchase price.The balance is funded from a reverse mortgage.

Such a reverse mortgage is ideal for the purchase of aretirement home where you obtain the down payment cash from the sale of yourformer residence. Of course, you must be at least 62 to qualify. Details areavailable on the Internet at for Fannie Mae reverse mortgage originators in your state.


DEAR BOB: My wife passed away recently. If I sell our homesoon, can I take the $500,000 principal residence sale tax exemption, or am Ilimited to just $250,000? You often mention “stepped-up basis” fortax purposes. How does this affect my situation? –Berton McC.

DEAR BERTON: There is no need to rush to sell your home.Take your time to adjust to your new situation without your spouse.

If you decide to sell in 2006, and your wife died in 2006,presuming you and she both occupied the principal residence at least 24 of the60 months before its sale, and at least one of you held title for that timeperiod, Internal Revenue Code 121 allows you to claim up to $500,000 principalresidence sale tax exemption. That presumes you file a joint tax return in theyear of your late wife’s death.

However, if you don’t sell the home in 2006, you willprobably come out just as well or better thanks to the “stepped-upbasis” rule for inherited property. Presuming your wife held title to 50percent of the home and you inherited her share, your new basis becomes themarket value for that half on the date of her death, plus your original basis forthe other half.

But I notice your letter is postmarked from a communityproperty state. If the home was community property, then you get a newstepped-up basis for 100 percent of market value on the date of your wife’sdeath. Please consult your tax adviser for exact details.


DEAR BOB: Please tell me the best and easiest way to add aco-owner to the title to my home? –Fran G.

DEAR FRAN: The easiest way is to sign and record a quitclaimdeed from yourself to yourself and the new owner. Be sure to specify on thedeed how you want to hold title, such as tenants in common or joint tenancywith right of survivorship.

Please consult a local real estate attorney to discuss thepossible tax and legal consequences. If you decide to proceed, the attorney canthen prepare the quitclaim deed and have it recorded.

The new Robert Bruss special report, “Pros and Cons ofToday’s Five Best Real Estate Profit Opportunities,” is now available for$5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at1-800-736-1736 or instant Internet delivery at Questions for this columnare welcome at either address.

(For more information on Bob Bruss publications, visit his
Real Estate Center

Copyright 2006 Inman News

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