Reverse Mortgages Can Also Be Used by America’s Seniors to Purchase a Home
Most seniors have thought of these loans as a way to get the equity out of their home and live payment
free - see reverse mortgage options below news story
By Mike Branson, All Reverse Mortgage
2012 - A reverse mortgage can be used in the purchase of a new home in what is called a Home Equity Conversion Mortgage
Purchase. Basically, a new home is bought at the same time a reverse mortgage is taken, and the transaction is rolled into one.
It’s an option for homeowners who
want to relocate, either to be closer to family, to downsize, or move to a home that better
meets their needs—a home without stairs, for example—at the same time as converting home equity into cash.
In order to qualify for a purchase reverse mortgage, however, the down payment on the new property must be covered either
by the sale of the previous home or through savings or other means.
Proceeds from the sale of the previous home and savings are the most common ways for borrowers to meet the down payment
requirement. There are other acceptable sources of funding under the Federal Housing Administration, which is the insurer for the loan.
Those that are NOT acceptable include sweat equity, trade equity, rent credit and cash (or equivalent) from someone
benefiting from the reverse mortgage transaction or a third party that is reimbursed by someone benefiting from it. Cash advances from credit
cards are also not accepted.
For sources that will work to finance the equity portion of the loan, borrowers can use an earnest money deposit or a
withdrawal from a savings or checking account or retirement fund.
Some forms of gift money are also OK, including gifts from family members, employers, a charity or government
organization with an interest in home ownership initiatives, or a close friend who has a documented interest in the borrower. Gifts from
anyone involved in the transaction in any way are not acceptable.
Other, less common sources of funding can also be used, such as collateralized loans, savings bonds, employer assistance
programs, and other means. The Federal Housing Administration defines all acceptable sources on its
Most property types can be used in a reverse mortgage for purchase, with several exceptions. The home must not be under
construction, and must be habitable.
Co-ops, boarding houses, B&B’s and newly constructed homes where a Certificate of Occupancy has not been issued are
Certain types of manufactured homes also may not be used. Those built before 1976 and those built since then but failing
to comply with Department of Housing and Urban Development standards won’t fit the bill for a Purchase reverse mortgage.
An Overlooked Way for Older Americans to Buy a Home
Using a reverse mortgage to buy a
home can be good option for those who want to relocate and avoid mortgage payments
Aug. 2, 2012 - Many older homeowners want to move but dread a hefty mortgage payment. There are
various ways to remedy this problem, including one that has too often been overlooked: using a reverse mortgage for a home purchase.
Usually, these loans are for taking cash out of a home one has had for many years. The so-called HECM
for Purchase has been available since 2008, but is rarely discussed. It allows a homeowner -- or even a renter -- to use a
reverse mortgage to buy a home.
Read more by Jeff Brown in The Street
Click here for a chart prepared by All Reverse Mortgage that shows examples of down payments
buyers might expect.
The amount that can be borrowed is dependent on age and home value. It’s best to check with a lender on the amount that
will be required as a down payment and whether sources of funding will be needed in addition to the proceeds of the previous home sale.
For those who do qualify, the reverse mortgage purchase can be used as a tool toward funding retirement in addition to
moving to a new home that is more suitable for aging in place.
The term “HECM Standard” refers to a traditional Home Equity Conversion Mortgage, which has been available since 1989.
There are currently more than 500,000 issued HECMs in the market. The amount of money you receive is based on a table created by HUD and based
on your age, the appraised current value of your home and interest rates. Fees can include an origination fee, an upfront mortgage insurance
premium (MIP), a servicing set aside and traditional closing costs. (For fees go to,
What will a reverse mortgage cost me?). This product is desirable for senior homeowners who need the most money available to
HECM Saver is a lower-cost version of HECM Standard. The saving comes from a lower upfront mortgage insurance premium
(MIP). The M.I.P. collected by the Federal Housing Administration on a HECM Saver is equal to 0.01, rather than 2% on a HECM Standard. On a
$250,000 home, for example, you pay $25 in MIP under the Saver option, instead of $5,000 for a HECM Standard. The trade-off is that you
receive 10-18% less money.
This product is desirable for people who don’t need as much money compared to HECM Standard, or don’t want to pay the
higher fees. Because the fees are lower, and no monthly payment is required, it may also prove to be a better option than obtaining a home
equity line of credit.
While the typical retiree uses a HECM to eliminate debts, pay for healthcare and/or cover daily living expenses, a
growing segment of the senior population is using it to purchase a home that better suits their needs.
The advantage of using HECM for Purchase is that the new home is purchased outright, using funds from the sale of the old
home, private savings, gift money and other sources of income, which are then combined with the reverse mortgage proceeds. This home buying
process leaves you with no monthly mortgage payments.
While study after study reveals that an overwhelming percentage of seniors want to continue living in their current home
for as long as possible, for some people that isn’t the best, or safest, option. HECM for Purchase offers a solution to downsize into a place
that’s more easily navigable, possibly more energy efficient, with lower maintenance costs, or which is closer to friends and family.