Should Seniors Buy a Home to Utilize the HECM Reverse Mortgage?
Despite the numerous benefits it offers, many seniors are somewhat hesitant to use a HECM reverse mortgage to buy a new home. Their reluctance, however, is quite understandable since most senior citizens do not have firsthand access to information about this mortgage loan.
To help you make a well-informed decision, let’s talk about the benefits of reverse mortgage loans and why you should consider using one to purchase your new home.
Buying a house with a HECM reverse mortgage
There are so many reasons you may want to buy a new home as you enjoy your retirement years. Your current house might be too big, and you may want to downsize to a smaller one-level home to cater to your changing physical needs. Perhaps you want to move closer to your family, and relocating to a new home is the only option. Whatever your reasons, buying a house with a HECM can prove beneficial. Here are the details.
A HECM allows you to buy a new house without using your retirement savings. You only need to make a down payment using a small amount of your savings to initiate the purchase process. Your lender will then calculate the reverse mortgage loan you are eligible for using the equity earned and the value of your new home.
You can then use the loan to purchase your new home and remain with funds to cater to your living expenses. The best part is that you’ll never have to repay the loan every month like a traditional mortgage until you move out or pass away.
Why seniors should buy a house with a HECM reverse mortgage
Buying a new home with a HECM reverse mortgage can be beneficial to your financial status. The purchase loan can help cushion you from pressing and immediate financial problems that might force you to usurp your retirement savings. With that said, here’s how a HECM for home purchase might be a good idea for you.
1. You can liquify your assets
If you have financial challenges and your savings are not enough to meet your everyday expenses, a HECM purchase loan allows you to quickly convert your home equity into cash. Having cash at hand can go a long way to secure your retirement. Moreover, you have numerous disbursement options, giving you more financial freedom to cover your different needs.
2. Home remains under your name
One of the reasons many seniors react to HECM with caution and suspicion is the misconception that the new home will remain in the lender’s hands. Nothing could be further from the truth. When you buy a house using a HECM loan, you maintain its ownership.
3. No monthly mortgage payments
Unlike traditional mortgages, where you have to repay your loan monthly, HECM reverse mortgage loans do not have this requirement. Instead, you get to receive monthly payments from the lender depending on the disbursement option you choose. The only time you get to repay the loan is when you move out or sell the house.
4. No tax liabilities
Another attractive benefit of HECM loans to seniors is that it does not draw taxes. The Internal Revenue Service considers reverse mortgage loans as a loan advance rather than a form of retirement income. For this reason, you do not have to pay taxes on your HECM.
5. Greater financial security
HECM reverse mortgage loans offer greater financial security to seniors and retirees. After all, the loan is protected by federal insurance, meaning if the value of your home drops, the federal government will pay the exceeding balance.
What you need to know about deferring a reverse mortgage
Many people don’t know that you can defer a reverse mortgage when facing a foreclosure. The federal government has put in place various protections and policies to protect senior homeowners from losing their property by allowing for an extension of the reverse mortgage.
You can request your lender to allow you to defer your loan until such a time you can pay. The lender may heed this request and delay calling your loan for up to six months. The HECM has to be insured by the Federal Housing Administration for this provision to apply.
Does deferring a reverse mortgage have any benefits?
As you know by now, deferring a HECM reverse mortgage loan is very much possible. The benefit of this is that it allows you more time to organize your finances and prevent a foreclosure. Your lender can give you up to 6 months before calling your loan due and payable. Interestingly, no supporting documents are required to defer your reverse mortgage.
Why talking to a HUD-approved HECM counselor is important
You can seek help to keep your home during the deferment period by reaching out to local and state agencies like the Area Agencies on Aging (AAA). Talking to a HUD-approved HECM counselor will prove crucial during this time. The role of a HECM counselor is vital before and after securing a reverse mortgage loan. They will be able to evaluate your financial status, assess your options, and advise you accordingly if you cannot pay back your reverse mortgage loan.
Taking up a HECM reverse mortgage loan can be beneficial, especially if you plan to downsize to a new home during your retirement years. The loan will secure your retirement savings and help you cater to your daily expenses without struggling. With that said, consider talking to a HUD-approved HECM counselor for proper guidance before and after taking your loan.