Can you buy a home using a reverse mortgage? The answer is a definite yes. Buying a home with a reverse mortgage is usually a conversation for seniors that are looking to downsize from the homes they already live in, and especially the amount of money they are paying. The Department of Housing and Urban Development (HUD) has a “HECM for Purchase” program that allows seniors, age 62 or older, to purchase a home using a reverse mortgage.
Buying a home with a reverse mortgage is a topic that most people don’t know that much about. With this article, we want to provide you with some valuable information to help understand how buying a home with a reverse mortgage will benefit you and or your family. We know this will be valuable to you when you begin a conversation with us at Rick May or the lender of your choice.
Before we get to the information on what you can do while buying a home with a reverse mortgage, let us define what a reverse mortgage is. A reverse mortgage is a type of mortgage in which a homeowner can borrow money against the value of his or her home, receiving funds in the form of a fixed monthly payment or a line of credit. No repayment of the mortgage (principal or interest), is required until the borrower dies, moves away permanently or sells the home. The transaction is structured so that the loan amount will not exceed the value of the home over the life of the loan.
In 2008, Congress authorized the HECM for Purchase program, under which seniors can buy a house and take out a HECM reverse mortgage at the same time. With this program, the qualification requirements associated with forward mortgages are avoided, and only one set of settlement costs is incurred.
The HECM line of credit can be a great tool when utilized as part of a larger financial planning strategy to keep more of your assets in place to continue to grow.
How buying a home with a Reverse Mortgage works
It’s best to understand when buying a home with a reverse mortgage you must be at least 62 years old to qualify. It’s also important to understand that not everyone will qualify for a Home Equity Conversion Mortgage (HECM) for a Purchase transaction.
The HECM Purchase program is what we at Rick May or the lender of your choice will use to start buying a home with a reverse mortgage. We’ll then start calculating what amount of money you can qualify for as if you have already owned that property. Below is a way to see how your qualification and loan amount is calculated:
- Your down payment
- The appraised value of the property
- Your age
When you eventually qualify for buying a home with a reverse mortgage, the obligations to you are that you’ll need to pay the property taxes as well as any or all dues Homeowners Association Fees. You’ll also have to pay homeowner’s insurance and of course you’ll need to maintain the home and reside in it. These obligations are no different from what any homeowner would have to pay if they had a traditional mortgage or if they owned the home altogether.
Can this Burden your Heirs?
An important question always arises when we discuss buying a home with a reverse mortgage with the possible heirs to the properties. That question is this, “What happens when our parents pass away, or can’t live there anymore?” The answer is very straightforward. When an HECM borrower no longer lives in their house, due to any number of factors, that loan and the interest will need to be paid. Once this happens the house will be sold. If that house is sold for more than that interest and loan, you will receive that money, or your heirs will.
On the other hand, if the home comes in to be worth less than what is due, you and your heirs aren’t responsible to pay that negative balance, since a reverse mortgage is a non-recourse loan. The Federal Housing Association as the insurer of the loan will cover the balance.
Another question heirs ask is if they’ll have the ability to own the house? The answer is Yes! Heirs can sell the house, own it with a new mortgage or not do anything and let the house go.
In the end…
Buying a home with a reverse mortgage has many great benefits and obligations to you as we listed in this article. We hope this has shed some light on the buying a home with a reverse mortgage topic. There is obviously, so much more to this process. Contacting us at Rick May or a reverse mortgage specialist in your area is in your great interest. With anything in life, knowledge is key, so please don’t hesitate to reach out. We are here to help make buying a home with a reverse mortgage as seamless as possible.