How to Buy a House with a Reverse Mortgage in 2024

This can help you live more comfortably and enjoyably in your retirement years.

The HECM for Purchase

The HECM for Purchase is a type of reverse mortgage that allows you to purchase a new home with a down payment of typically 30-50%.

Like other reverse mortgages, HECM and HECM for Purchase loans are insured by the Federal Housing Administration (FHA), which is a division of the U.S. Department of Housing and Urban Development (HUD).

Unlike a traditional mortgage, a standard reverse mortgage allows you to stay in your current home with an optional monthly payment, which means you don't have to make any payments toward principal and interest until you move out of the home or pass away.

However, you still have to pay taxes and insurance and maintain the home. When you do eventually move out or pass away, the balance of the loan comes due, and you or your heirs can sell the house to pay it off or refinance to a “forward” mortgage.

With a HECM for Purchase, you get the benefit of having an optional monthly payment, but on a new home. You can use the equity from the hefty down payment to access the funds you need to buy your new home.

If you're wondering where this equity comes from, it's essentially the difference between the price of the home and the amount you put down.

If you're considering a HECM for Purchase, you may be wondering if you'll have to sell your current home to access the funds needed for the down payment.

While this is an option, it's not a requirement. Some borrowers choose to sell their current homes and use the proceeds of the sale toward the down payment, but others may choose to use savings, investments, or other assets.

One of the benefits of the HECM for Purchase is that you can still benefit from the equity in your new home.

Just like with a standard reverse mortgage, when you eventually move out of the home or pass away, the balance of the loan comes due, and you or your heirs can sell the house to pay it off or refinance to a “forward” mortgage.

However, keep in mind that you'll still have to pay taxes and insurance and maintain the home.

In summary, the HECM for Purchase is a type of reverse mortgage that allows you to purchase a new home with a down payment of typically 30-50%.

This loan is insured by the Federal Housing Administration (FHA), and you can still benefit from the equity in your new home. If you're a senior looking to buy a new home, the HECM for Purchase may be a viable option to consider.

Pros of a HECM for Purchase

One of the main advantages of this type of reverse mortgage is that it can save you money by requiring only one set of closing costs if you're selling one home to buy another.

Another benefit is that there are no monthly mortgage principal and interest payments, which allows you to preserve more of your savings. This is a significant advantage, especially for those on a fixed income or with limited retirement savings.

Another advantage of a HECM for Purchase is that it allows you to get more home for your money. Since the down payment is typically between 30-50%, the HECM for Purchase loan can cover the remaining balance.

This can help you afford upgrades or purchase a more expensive home that you may not have been able to afford otherwise.

Additionally, you can improve your quality of life by moving to a smaller home or relocating closer to family or to a preferred neighborhood.

Another advantage is that a HECM for Purchase can help you avoid dipping into your retirement savings to purchase a new home.

By using a HECM for Purchase, you can preserve your savings and use them for other expenses, such as healthcare or travel. This can help provide peace of mind for seniors who want to maintain their standard of living during retirement.

In summary, a HECM for Purchase is an excellent option for seniors who want to buy a new home without dipping into their retirement savings or making monthly mortgage payments.

The advantages of a HECM for Purchase include one set of closing costs, no monthly mortgage payments, the ability to get more home for your money, and the ability to improve your quality of life.

Who is an HECM for Purchase for?

An HECM for Purchase loan is designed specifically for seniors aged 62 or older who want to buy a new home. It allows them to use the equity from their current home to purchase a new one, without having to make monthly mortgage payments.

But who is this product really for? Well, it's perfect for seniors who are looking to "rightsize" into a new home. As we age, our needs and priorities change, and our current home may no longer meet our needs.

Perhaps we no longer need a large family home, and want to downsize to a smaller, more manageable property. Or maybe we want to move closer to family or to a location that's more convenient for our current lifestyle.

The HECM for Purchase loan can also be an excellent option for seniors going through a divorce.

In many cases, one spouse may want to keep the family home, while the other wants to move out. The HECM for Purchase loan allows the spouse who wants to move out to purchase a new home without having to make monthly mortgage payments.

Qualifications for a HECM for Purchase

If you are considering a reverse mortgage to purchase a new home, it is important to know the requirements for qualifying for the HECM for Home Purchase (H4P) Program.

Here are the five main requirements you must meet:

• Be 62 years of age or older - The HECM for Purchase program is designed specifically for older Americans, so one of the primary requirements is that you must be at least 62 years old. This is because reverse mortgages are designed to allow seniors to tap into their home equity to supplement their retirement income.

• Purchase a primary residence home only - The HECM for Purchase program can only be used to purchase a primary residence home. This means that you cannot use a reverse mortgage to buy a second home or an investment property. The home you purchase must be your primary residence, and you must plan to live there for the majority of the year.

• Have suitable credit and income history - While a reverse mortgage does not require monthly mortgage payments, you still need to have a suitable credit and income history to qualify for the H4P program. This means that you will need to demonstrate that you have enough income to cover your ongoing expenses, including property taxes and homeowner's insurance.

• Pass a mandatory Financial Assessment - The HECM for Purchase program requires that all borrowers pass a mandatory Financial Assessment to ensure that the reverse mortgage will be feasible for them. This assessment takes into account your income, expenses, and credit history to determine whether you will be able to meet your ongoing obligations and maintain your home.

• Remain current on property taxes, homeowner’s insurance, HOA dues, and routine home maintenance - Finally, to qualify for the HECM for Purchase program, you must be willing and able to stay current on your property taxes, homeowner’s insurance, HOA dues, and routine home maintenance. Failure to keep up with these expenses could put you at risk of defaulting on your loan and losing your home.

Eligible Property Types

Single family homes and existing properties with four units or less are typically eligible for a HECM for Purchase loan. This can include townhouses, condominiums, and planned unit developments (PUDs).

However, not all types of properties are eligible for a HECM for Purchase loan. According to the U.S. Department of Housing and Urban Development (HUD), the following properties are not eligible:

• Cooperative Units - Cooperative units are not eligible for a HECM for Purchase loan. This is because ownership in a cooperative unit is represented by shares of stock in the corporation that owns the property, rather than ownership of the physical property itself.

• Newly constructed residences without a Certificate of Occupancy - Newly constructed residences that have not received a Certificate of Occupancy or its equivalent from the appropriate local authority are not eligible for a HECM for Purchase loan. This is because the property has not been deemed livable by local authorities.

• Boarding houses and bed and breakfast establishments - Properties that are operated as a boarding house or bed and breakfast establishment are not eligible for a HECM for Purchase loan. This is because the property is not considered a primary residence.

• Existing manufactured homes built before June 15, 1976 - Existing manufactured homes that were built before June 15, 1976 are not eligible for a HECM for Purchase loan. This is because they do not meet the safety and construction standards set by HUD.

• Existing manufactured homes built after June 15, 1976 that fail to conform to safety standards - Existing manufactured homes built after June 15, 1976 that do not conform to the safety standards set by HUD are not eligible for a HECM for Purchase loan. This includes homes that lack a permanent foundation or were previously installed or occupied at another site.

It’s important to note that properties that require repairs or improvements to meet HUD standards may be eligible for a HECM for Purchase loan if the repairs or improvements are completed prior to closing.

If you’re considering a HECM for Purchase loan, it’s important to work with a qualified lender who can help you determine if the property you’re interested in is eligible.

How to Apply for a HECM for Purchase

Before applying for a HECM for Purchase, it’s important to understand the process and what’s required of you. The first step is to find an FHA-approved HECM lender and schedule an appointment to discuss your options.

During the application process, you will need to meet with a counselor from a HUD-approved housing counseling agency to make sure you fully understand the terms and conditions of the reverse mortgage.

The lender will also conduct a financial assessment to determine whether you can afford to maintain your new home and stay current on property taxes and insurance.

Additionally, the lender will need to appraise the home and perform a title search to ensure there are no liens or other issues that would prevent them from approving your application.

Finally, you will need to provide income verification and documentation of any other assets you have, such as Social Security benefits, pension income, investments, and 401(k)s or IRAs.

By understanding the process and being prepared to provide the necessary documentation, you can make the reverse for purchase application process as smooth and stress-free as possible.

Summary

A Home Equity Conversion Mortgage (HECM) for Purchase can be a smart solution for older Americans who want to purchase a new home without taking on a traditional mortgage.

With no monthly principal and interest payments, HECM for Purchase can provide peace of mind in retirement and allow for more flexibility in your housing situation.

However, it's important to keep in mind that there are certain requirements and restrictions to qualify for the HECM for Purchase program, including being 62 years of age or older, having suitable credit and income history, and purchasing an eligible property type.

With careful consideration and planning, a HECM for Purchase could be the key to unlocking your dream retirement home without the financial burden of traditional mortgages.