Reverse Mortgages for Home Purchase
In 2009, HUD announced the availability of the reverse mortgage loan for purchase transactions. Prior to this announcement, the reverse mortgage was used solely to refinance existing homes.
With the advent of the purchase reverse mortgage, borrowers age 62 and over* can use the loan to purchase a new home as well as just pay off an existing lien or extract equity from a property they already own.
*Borrowers must be age 62 and over to qualify for a reverse mortgage however, eligible younger spouses of homeowners can also benefit from a purchase reverse mortgage.
A younger spouse who also lives in the home and is on title and agrees to the terms of the reverse mortgage (must live in the property, agree to pay the taxes, insurance and any property charges in a timely manner and maintain the property in a reasonable manner) is not a borrower on the loan but is known as an “eligible non-borrowing spouse” and can also live in the property for life without making a monthly payment on the loan – even if something happens to the borrowing spouse.
With a purchase reverse mortgage, borrowers use 100% of their eligible loan amount from the start of the loan to purchase the property.
So, unlike the line of credit option on a refinance transaction where a non-borrowing spouse may not have access to remaining funds if something happens to the borrowing spouse before the line of credit is exhausted, the entire available line is used from the start.
Therefore, should the borrowing spouse predecease the non-borrowing spouse, there are no funds left unused on the line to which the non-borrowing spouse would not have access.
The bottom line, with a purchase reverse mortgage, even with younger spouses you never have to worry about not receiving all the reverse mortgage proceeds.
Why would 62-year-old borrowers be interested in a purchase reverse?
Many borrowers determine that they need to move later in life or really would like to move but find that their income may be insufficient for a conventional loan so their ability to pay for the home that they would need/like to purchase may be limited to an all cash transaction, thereby limiting their selection.
Borrowers often look at homes in retirement communities, homes that are closer to family or friends, closer to medical or other needs or just homes that better meet their needs.
Perhaps the home is a single story, has a smaller lot or is handicap accessible.
Many have been able to sell homes with mortgages and purchase a home that better met their needs with a reverse mortgage eliminating monthly payments and maintenance at the same time.
Whatever the reason, the reverse mortgage allows borrowers to purchase the home and finance roughly half of the purchase price with no monthly payment (some even more and some a little less depending on the age of the youngest borrower).
This enables borrowers to move when they might have had to remain in a home that no longer met their needs or one, they could no longer afford.
To find out what you would be able to receive with a purchase reverse mortgage, the first step is as easy as to use our reverse mortgage purchase calculator.
Down Payment Requirement
This is the amount of funds you put down from your savings or sale of another property to close your purchase
The down payment on a purchase reverse mortgage can come from proceeds from another sale of real estate, sale of other personal property, or cash on hand including 401k, stocks, savings, bonds etc. Gift funds from Family are acceptable.
Remember, because you only must come in with a portion of the purchase price, you will be able to purchase more home than with standard financing while still having no monthly mortgage payment.
This might just enable you to buy the home you felt was out of your price range but really meets your needs.
Some borrowers want to just use a fixed rate loan and not worry about ever repaying the loan until they permanently leave the home. Some wish to repay a portion of the loan and may wish to reborrow.
If you have specific goals, let us know and we can help you determine which option will best suit your needs.
A fixed rate loan is a “closed end” type of loan. You can repay any or all the funds at any time with no prepayment penalty but if you do, those funds may never be reborrowed.
The adjustable rate line of credit is an “open ended” type of loan.
With the line of credit option, you can also repay funds at any time without penalty but then if you choose to reborrow them later, you can do so.
It is all about your goals and plans.
- Hecm Purchase FAQ’s
- Here’s an Ideal Reverse Mortgage Purchase Example
- ARLO Reverse Mortgage Calculator Try ARLO Calculator to estimate your loan. (Includes Eligibility, Real-Time Rates & APR)
Working with a Realtor? If you are ready to make an offer on a property and need help explaining to Realtors and sellers how the reverse purchase program works and how it will benefit all parties, please contact us.
Remember that there are some very specific requirements for reverse mortgage purchases so we encourage you to contact us before you make your offer so that we can make sure that you and your real estate professional are completely up to date on all requirements in advance.
*Purchase Reverse Mortgage calculations are for illustration purpose only and are not an offer to lend. If you wish to receive a formal quote with an estimate of all loan charges, as well as an amortization schedule that will show interest accrued year by year please submit your information in the 3rd step of the calculator screen.