Seniors 62 years or older are able to take advantage of a reverse mortgage to gain access to cash through the equity in their homes. Many seniors need this cash to cover medical expenses, home improvements, groceries, in-home care, and many other unexpected costs. A reverse mortgage provides seniors with cash so that they are able to cover all of these expenses. As of January 1, 2022, the Federal Housing Administration’s (FHA) lending limit for Home Equity Conversion Mortgages (HECM) is $970,800.
A lesser-known reverse mortgage product is the reverse mortgage for purchase. A reverse mortgage for purchase allows seniors to purchase a home through a reverse mortgage, meaning they are able to move into a new home without ever having to make mortgage payments. This can be a valuable option for seniors who need a new home that better meets their physical needs, or who wish to move closer to family members. Instead of a buyer purchasing the house outright, the reverse mortgage allows them to keep cash in other investments for further growth.
Why a HECM for Purchase?
- Your current home no longer fits your lifestyle. Perhaps you have a multi-story home that served your growing family, but moving up and down the stairs has become difficult. Or maybe you have a large property and the upkeep has become too much to handle. Downsizing or opting for a single-story home may make sense for many seniors.
- You want to relocate. Many seniors like to relocate closer to family as they age. Others may wish to move into a quieter retirement or senior community. Some simply want to spend retirement in an area with more favorable weather.
- You need cash. With current home prices, the sale of an existing home can provide seniors with a substantial amount of cash. This can be used for typical monthly expenses, medical bills, vacations, and more. There are no limitations on how the cash can be used.
Unlike the traditional reverse mortgage, reverse mortgage for purchase loans require a down payment, which you must pay with your own cash. Typically, the down payment required is based on the borrower’s age. The older the borrower is, the lower the down payment requirement will be. The down payment, like a traditional FHA loan, can be gifted from a family member as well, but it cannot be borrowed.
Reverse mortgage for purchases are subject to the same guidelines and requirements of a standard Home Equity Conversion Mortgage.
To qualify, a reverse mortgage for purchase borrower must:
- Be at least 62 years of age
- Own their property outright or have a low mortgage balance
- Occupy the home as their primary residence
- Not be delinquent on any federal debt
- Have the ability to pay ongoing property charges such as property taxes, insurance and Homeowner Association fees, etc.
- Participate in a reverse mortgage information session given by a reverse mortgage counselor approved by the U.S. Department of Housing and Urban Development (HUD)
Properties eligible for purchase include:
- Single-family homes
- 2-4 Unit homes with one of the units occupied by the owner
- HUD approved Condominiums
- FHA-approved manufactured homes
- Must meet all of the FHA’s property standards and flood requirements
As with traditional reverse mortgage loans, a borrower’s income, expenses, and credit history will also be reviewed and verified by the lender.
The reverse mortgage for purchase loan can be a great financial tool for seniors. The ability to relocate to a more suitable home without incurring a monthly mortgage payment or expending retirement assets can be invaluable to seniors.
Seniors however, should be cautious with any reverse mortgage investment. While monthly payments don’t have to be made on a reverse mortgage for purchase, interest may eventually end up surpassing the money that was put down on the home if the borrower stays in the home for an extended period of time. If it is important to leave your home to your heirs, this is something that should be considered. At Covenant Reverse Mortgage, LLC, we want to make sure we provide all of our clients with the necessary information to make an educated decision on whether or not a reverse mortgage for purchase loan is the right choice. We specialize in traditional reverse mortgage and reverse mortgage for purchase loans throughout Boise, Caldwell, and Coeur d’Alene, Idaho. For any questions you may have about the HECM for purchase program, contact us today!