Buying a Home with a Reverse Mortgage for Purchase
Lots of people have seen television commercials touting reverse mortgages as an excellent way for seniors to make the most of the equity in their home. However, many may be unaware they can also use the program to purchase a new home.
Downsizing, upsizing or relocating to a retirement community? If you are age 62 or older, a Reverse Mortgage for Purchase may help you more comfortably afford an upgrade, or spend less money out-of-pocket. Instead of paying for the home in cash or taking out a traditional mortgage, you can use a reverse mortgage to finance part of the purchase price.
What is a Reverse Mortgage for Purchase?
A Reverse Mortgage for Purchase (or HECM for Purchase) is an FHA-insured mortgage loan that is designed to provide adults who are age 62 years or older with greater flexibility in their retirement years. It may enable you to buy a new home that suits your lifestyle and unique needs.
How does it work?
The HECM for Purchase program requires an up-front investment (down payment) from the buyer. The down payment must come from assets you already own—such as money from the sale of a current home or investment or funds you have in a checking, savings, CD, or retirement account—not another loan.
The minimum required investment is based on the age of the youngest borrower. To calculate a buyer’s minimum required investment, we take the value of the home being purchased (the sales price or appraised value, whichever is less); add any loan or home purchase closing costs; and then subtract the available HECM loan proceeds. This calculation is determined by the Department of Housing and Urban Development (HUD).
- You own the home, with it titled in your name
- There are no monthly mortgage payments, which can help boost your cash flow.
- You will still be responsible for property taxes, homeowner’s insurance and maintaining the home.
- The loan becomes due if you pass away; sell the home; no longer live there as your primary residence; or fail to meet your responsibilities to maintain the property, pay homeowners insurance, and property taxes.
What kind of home can you buy?
The following options are eligible for purchase under the HECM for Purchase program, so long as the home being purchased is your primary residence.
- Single family home
- FHA-approved/HUD-approved condominiums