Most frequently a reverse mortgage is used to convert equity in your current home into available cash. Did you know you can also use a reverse mortgage to PURCHASE a home? More importantly, you can buy your dream home without having a monthly mortgage payment at all.
The Home Equity Conversion Mortgage (HECM) is a Federal Housing Administration program that has been around since 1989 and the HECM for Purchase since January 2009. The stability and Homeowner satisfaction with these programs provide peace of mind for anyone considering a HECM.
Here are a few examples of how a HECM of Purchase might work with multiple down-payment and home price scenarios.
These examples are illustrative in nature and are only estimates.
(1) Down Payment Required: Actual down payment amounts may vary based on interest rate and other factors. Please see additional down payment information here.
(2) Mortgage Payment: By utilizing a HECM for Purchase a monthly mortgage payment is no longer required, but the borrower is still be required to pay property taxes, homeowners insurance and HOA dues if applicable.
With a HECM for Purchase you can purchase a new or resale primary residence of any sort for which you would normally use a reverse mortgage including:
- Single-Family homes
- 2 to 4 unit homes with 1unit occupied by the borrower (you)
- Condominiums approved by HUD
- FHA-approved manufactured homes
Using a HECM for Purchase, your reverse mortgage loan amount and prequalification are based on:
- Your age
- Your down payment
- The appraised value of the property
The fees, interest rates, terms and conditions of the loan are all identical to those of a normal reverse mortgage. You never have to make mortgage payments as long as you live in the property. None of the money borrowed for a reverse mortgage has to be paid back until you no longer live in the property. Please keep in mind your home must be your primary residence, be properly maintained, and all taxes and insurance must be kept current.
Are there drawbacks? As with nearly everything, there are things you may want to consider or discuss with your family and heirs prior to your HECM for Purchase:
- Requires a large down payment, no other liens allowed;
- Will you be able to ensure you have enough cash flow to maintain your homeowner’s insurance and property tax payments?;
- What is the potential impact to your estate?
Using a reverse mortgage for purchase is an ideal solution when you have available a large down payment (for example, have you sold a previous home and come away with a significant amount of money from your equity?). Many seniors consider purchasing their destination home by paying all cash. Imagine instead, you purchase your home using a HECM for Purchase and never have a mortgage payment again. You then have the ability to invest monies previously earmarked for down payment into other lucrative investments and/or enjoy the fruits of your labors with the monies not tied up in a home purchase!
- Take that dream vacation
- Helping a child/grandchild with college
- Go back to school yourself
- Buy that new car that dazzled you when you window-shopped
- Something philanthropic and rewarding
All things you can consider when your equity is in your pocket instead of being tied up in a home.
Check out the section on our website dedicated to HECM for Purchase.
We’d love to chat with you about helping you purchase your new home using the HECM for Purchase program.
If you are a realtor and want to know more about the HECM for Purchase program for your clients, please use our Contact Us form and we will be happy to meet with you.