If you’re looking to “right size” your life, the HECM reverse purchase mortgage program might be right for you! Many seniors and their family members are not aware that they can use a reverse mortgage to purchase a home and remove the burden of a mortgage payment. The reverse purchase program can be a great option for seniors looking to downsize their home, relocate to a more hospitable climate, move closer to children and grandchildren, or for any other reason deemed appropriate.
We will endeavor to cover the following:
1. A quick primer on what a HECM reverse mortgage is.
2. General qualification standards for reverse mortgages as well as standards specific to the HECM reverse purchase mortgage.
3. The specifics of how a HECM reverse purchase mortgage works.
4. Benefits and drawback of the HECM reverse purchase mortgage.
HECM Basics
The HECM reverse purchase mortgage program is a powerful tool for seniors interested in taking control of their retirement. Let’s take a look at the details of how it works.
First, for those not acquainted with the HECM reverse mortgage, let’s get a quick understanding of what a reverse mortgage is. Reverse mortgages are a mortgage that unlocks the equity in a home to allow the home to pay for its self. Essentially, you will draw from the equity in the home to pay the mortgage payment. This means that instead of you paying the mortgage on a monthly basis and reducing your loan balance, you will add that payment to your mortgage balance each month.
You are guaranteed no more mortgage payment and should you choose to, you will own the home and be able to live in it for the rest of your life. The homeowner only needs to guarantee that the property will be owner-occupied and that they will maintain the home, and that taxes and insurance will be paid. Again, to be clear, as long as you take care of the three items previously mentioned you will be able to live in the home, even if the loan balance became greater then the home value! That is security!
For those who might be skeptical, the reason that you are able to do this is due to the fact that the FHA (Federal Housing Administration) guarantees the loan. This means that should the loan balance exceed the home value the FHA will step in and make sure that the lender is made whole. Wah-la! You AND the bank are protected!
HECM for Purchase
Now let’s discuss the reverse mortgage for purchase! The reverse mortgage for purchase uses the equity in your home to pay for the mortgage on your new home. Often, a homeowner sells their current residence and use the proceeds to purchase a new home. For example, let assume that an owner sells their current residence for $250,000. The home had a small mortgage balance of $15,000. The seller cleared $250,000 after all closing costs and the mortgage was paid.
The seller uses $228,000 as a down payment on their new home which they are purchasing for $425,000. The reverse mortgage would require that the buyer bring $228,000 to close and the remainder of the purchase price and closing costs would be covered by the reverse mortgage.
HUD’s New Rule
In September of 2017, the reverse purchase rules were changed to allow sellers to contribute to pay certain fees associated with the transaction. Sellers are allowed to pay for home warranty fees, fees required to be paid by the seller by state law and fees that are typically paid by the seller in the subject market.
If the purchaser wanted to make a larger down payment, say $300,000, the added down payment would have appeared as a reverse mortgage line of credit. This line of credit would be accessible to be used as the owner sees fit. Even better it grows at the interest rate of the reverse mortgage. If you would like more information on the HECM reverse mortgage line of credit, just click one of the hyperlinks in the text above!
The client would have a mortgage-free property that only requires they pay taxes, insurance and continue to maintain the property. This is a long-term solution for many seniors. As a retirement strategy, it allows seniors to maintain or upgrade a lifestyle without having to access retirement savings accounts.
Pro & Con
Reverse purchase transactions are a very powerful tool for retirement planning. A reverse purchase offers seniors the option to upgrade, downsize, or relocate as they see fit without the added burden of a new mortgage payment. For fixed-income retirees, this can often crucial.
The other side of the coin is that the HECM reverse mortgage for purchase program uses the equity in the home to satisfy the mortgage’s obligations. This means that each month the equity in your home will decrease by the amount of these mortgage obligations. If you are planning on leaving this equity to your heirs be aware that it will be decreasing on a monthly basis. You will need to either pay off the reverse mortgage or transition and the asset passes on to your heirs to stop the loss of equity. This can offer a substantial benefit as well. A reverse mortgage allows the loan balance to be greater than the value of the home! So, should you outlive the equity in your home, you know you will not be forced to relocate! You will need to maintain the taxes, insurance, and property!
Summing Up
In summary, the HECM reverse mortgage for purchase program is a tremendous tool for managing retirement and retirement assets. It can provide the option to upgrade, downsize, or relocate to seniors who may be limited by a fixed income as well as those just looking for ways to manage their home equity. Often, a home is the most important and lucrative investment a person will make. The HECM reverse mortgage and reverse mortgage for purchase program can allow for a way to access those funds. It also allows for the retention of your residence. Retention of a home is often a paramount concerned for seniors as they enjoy their golden years.
Truehecm.com
We here at truehecm.com are always listening. If you have a question or comment please reach out to us. You can comment below or you can contact us through our contact page. We would also love your feedback through a review!
If you are in California, our HECM reverse mortgage specialists are always ready to help. Just drop us a line through the contact page and well get to you ASAP!
Also, check out our about page for a little more information about us!
For additional reading try:
FHA Reverse Mortgages (HECMs) for Seniors
Is it smart to use a reverse mortgage to buy a home?
About the Author
About the author: Sean Thomas is a businessman, brokerage owner, blogger, athlete, father, and husband. Not necessarily in that order! Having been in the mortgage and real estate industry since 2005 he has a deep knowledge of the real estate and mortgages their trends and quirks. Follow Sean on Twitter for more tips, information, and musings.
