Reverse Mortgage for Purchase

 

Frequently Asked Questions

Most people don’t know this, but a reverse mortgage can be used to “purchase” a new home.  This means that you can buy a new home with a reverse mortgage, and not have to worry about making monthly mortgage loan payments as long as you live in the home.  However, you must still pay your property taxes, home insurance, and any association dues.

 

How do I use a reverse mortgage to purchase a new home?

The reverse mortgage for purchase allows older adults, age 62 or older, to use a reverse mortgage loan to purchase a new principal residence, and have no monthly loan payments as long as the borrowers are living in the home as their primary residence.  Borrowers are responsible to pay property taxes, home insurance, and association dues if applicable.

 

What are the down payment requirements?

The required down payment is the difference between the purchase price and the amount of funds available from the reverse mortgage.

 

Must the borrower occupy the property?

Yes.  The reverse mortgage for purchase program is only available for owner occupied properties, and the borrower must occupy the property within 60 days after closing.

 

When is a reverse mortgage for purchase typically used?

  • Borrowers cannot qualify for a traditional mortgage
  • Can qualify for more home than with traditional mortgage
  • Empty-nesters downsizing in retirement
  • Relocation to be near family, friends, or warm weather
  • Need single story home for physical needs
  • Need home with other senior friendly attributes such as widened doorways, safe bathrooms, ramps, limited stairs, etc.

 

What property types are eligible?

Properties that are eligible for purchase with a reverse mortgage include:

  • Existing Single Family residences
  • FHA approved condominium
  • Manufactured homes*
  • New Construction properties where the Certificate of Occupancy or equivalent has been issued BEFORE taking the application, ordering services, etc.

*Some restrictions apply.

 

Must the borrowers pay property taxes and insurance?

Yes.  Under the terms of the loan, the borrowers are responsible to pay property taxes, home insurance, association dues, or any other property obligations that may become a lien on the property.  Like any traditional mortgage, failure to do so may result in foreclosure.

 

Reverse Mortgage for Purchase – Scenarios

Below are just of few hypothetical scenarios illustrating the power of using a reverse mortgage to purchase a home in different circumstances.  These scenarios are only examples, and your circumstances may be different, however a reverse mortgage for purchase could help you achieve your retirement home purchasing objectives.

 

Scenario 1

  • Mr. and Mrs. Smith wish to downsize
  • They sell their current home for $400,000 and pay off their mortgage of $250,000 – leaving $150,000 cash leftover
  • Some possible options for Mr. and Mrs. Smith when buying their next home:
    • They can buy a $150,000 home for cash and have no monthly mortgage payments
    • They can buy a $250,000 home, put $150,000 down and take a traditional forward mortgage for $100,000 with monthly payments.
    • They can buy a $250,000 home, put $120,000 down, take a HECM reverse mortgage for $130,000, and have no monthly mortgage payments for as long as they live in the home – AND keep $30,000 in cash in their bank account.
    • They can buy a $280,000 home, put $150,000 down, take a HECM reverse mortgage for $130,000, and have no monthly mortgage payments as long as they live in the home.

 

Scenario 2

  • Ms. Jones wishes to relocate into a similar home in a new state or retirement location that is higher priced.
  • She sells her current free and clear home for $200,000, but similar homes in the new state or retirement location run $300,000 – $350,000.
  • Some possible options for Ms. Jones when buying her next home:
    • She can buy a $300,000 home for cash by using the proceeds of their sale and $100,000 cash from savings and have no monthly mortgage payments.
    • She can buy a $300,000 home, put $200,000 down, and take a traditional forward mortgage for $100,000 with monthly payments.
    • She can buy a $300,000 home, put $145,000 down, take a HECM reverse mortgage for $155,000, and have no monthly mortgage payments for as long as she lives in the home – AND keeps $55,000 in cash in their bank account.
    • She can buy a $400,000 home, put $200,000 down, take a HECM reverse mortgage for $200,000, and have no monthly mortgage payments for as long as she lives in the home.

 

Scenario 3

  • Mr. and Mrs. Johnson wish to purchase a second property such as a vacation home with the intention of eventually retiring, selling their primary home, and moving into the vacation home.
  • Their primary home is free and clear and worth $400,000.
  • Some possible options for Mr. and Mrs. Johnson when buying their vacation home:
    • They can buy a $250,000 home for cash by using cash from savings – no mortgage payments.
    • They can buy a $250,000 home, put $150,000 down out of savings, and take a traditional forward mortgage for $100,000 with monthly payments.
    • They can buy a $250,000 home for cash by using a HECM reverse mortgage to pull $200,000 from their current home and adding $50,000 from their savings.
    • They can buy a $350,000 home, put $150,000 down, and use a HECM reverse mortgage to finance $200,000 from their current home to cover the remainder – No monthly mortgage payments for life.
  • With the last two options, when the primary home is later sold, the proceeds can be put into savings or used to pay down the reverse mortgage balance.
Show Buttons
Hide Buttons