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Reverse Mortgages for New Home Purchases

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For those over 55 years old who are considering purchasing a new home, a reverse mortgage is actually an option.  

I’ve been writing for a while on reverse mortgages, and most of the blog posts so far are about the details and requirements associated with this type of loan.  In many instances, seniors refinance with a reverse mortgage when they have considerable equity in their home.  However, if you are thinking of moving soon, it is possible to use a reverse mortgage to purchase a home.  

There is a product called HECM for Purchase that I’d like to explain.  If you recall from my other posts, HECM stands for Home Equity Conversion Mortgage.  This is the most common type of reverse mortgage backed by the FHA.  A HECM for Purchase allows qualifying seniors to combine two transactions into one: purchasing the new home and securing a reverse mortgage.  This can be helpful when it comes to fees if you think a reverse mortgage is the choice for you.  

When purchasing a home, the borrower needs to provide a substantial down payment to create the equity necessary for the reverse mortgage.  Typically this comes from the sale of the previous home or cash available.  The loan amount is also based on the purchase price of the home and the amount of the down payment.  You’ll want to know that sometimes borrowers must meet certain loan to value ratio requirements and provide proof of funds for HECMs for Purchase.  

Ultimately, this can provide the benefit of purchasing a new home and receiving payments from the bank (instead of making payments with a traditional “forward” mortgage). 

There’s also a lot in common with the HECM for Purchase and the traditional HECM.  Home owners still must:

  • Be 55 years old
  • Live in the property as their primary residence
  • Maintain their home
  • Stay up to date on property taxes and homeowners insurance

If you’d like more information on a traditional HECM.

HECMs for Purchase may be a good option if you’re empty nesters and have too much house.  I’ve read about this type of case often.  A couple realize they have too much house and would prefer to downsize to a home that better suits their needs…typically a smaller house.  They either have substantial equity in the home because they’ve had a traditional “forward” mortgage for 10-20 years while raising a family, or they own their home outright.  This would then allow them to make the bigger down payment when purchasing a home and getting a reverse mortgage.

I hope this post helped you if you are thinking about a reverse mortgage for your new home purchase.  If you’d like more information, please don’t hesitate to reach out to the folks at Equity Access Group.  They’ve done a handful of these HECMs for Purchase lately, and they will help answer any questions you may have.

 

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