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How to buy a home with a reverse mortgage

Buying a home with a reverse mortgage is easy.

Wondering what a reverse mortgage is, and whether it can be used in the purchase of a new home? Absolutely it can , in a process called a Home Equity Conversion Mortgage Purchase or HP4 HECM. An existing home or new construction home is bought at the same time a reverse mortgage is taken, and the transaction is rolled into one.

It’s an option for homebuyers who, either to be closer to family, to downsize, or move to a home that better meets their needs—a single story home, for example- without draining all your cash reserves.

Watch this short video for more information.

The Home Equity Conversion Mortgage (HECM) for purchase is also known as a “HP4 reverse mortgage.” Read more here.

A reverse mortgage may not be right for everyone, or is it?  It is a great loan, It’s often not for the reasons that you think. One persistent myth about reverse mortgages is that you can’t buy a house with one. In short, you can. The devil is in details. Let’s take a moment to examine the facts.

What is a reverse mortgage?

This topic has been covered in more detail before. A reverse mortgage is a mortgage that does not require you to make monthly mortgage payments, just the taxes and insurance. Instead, interest accrues, and you pay it all back in one lump sum after you move out of your home or die.  You pay it back or your heirs do and keep the equity that remains.

Who qualifies for a reverse mortgage?

Reverse mortgages are only available to those who are at least 55, 62 years old for the FHA Insured version and have enough equity in their home. This means that you may need to make a larger down payment if you are buying a house with a reverse mortgage than you would if you are buying with other mortgage programs. If you’re 70 years old, the down payment would be approximately 50% of the purchase price. When they right size from their current home, many seniors choose to buy a house with a reverse mortgage.

However, income qualification is easier than with a forward mortgage. You do not have to make monthly mortgage payments. Your income must be sufficient to cover your housing and living expenses. This calculation is different from a conventional mortgage. You should be able to afford taxes, insurance, and basic living expenses. You can also include some of these expenses in your reverse mortgage to be eligible if you don’t have sufficient income.

How can I buy a home with a reverse mortgage?

Reverse mortgages are much less difficult to qualify for than forward mortgages. A short counseling session will be required and you’ll need to provide the same documentation as for a conventional mortgage.

The process of buying a home with a reverse mortgage is the same as a conventional mortgage in many aspects. Once you have been approved, you will sign the final documents, and then close your transaction.

Why would you take out a reverse mortgage?  I think it is pretty clear, it is a smart thing to do.  Even the experts agree now.  Why keep all your wealth in a home when you can increase your wealth with shrewd investments. 

What are the benefits of a reverse mortgage?

Reverse mortgages can offer seniors many benefits when purchasing a home.

Contrary to widely held belief, your home is yours just like a traditional mortgage. You just don’t have to make any mortgage payments.

It’s much easier to obtain a reverse mortgage, as we have already mentioned. This is an important point. Many seniors want to downsize but are unable to qualify for conventional mortgages. A smaller home will require less maintenance, energy, and maintenance costs. It is also easier to move from a two-story home into a one-story home when it becomes difficult to use stairs.

It can be dangerous to choose to age in the wrong place. A reverse mortgage is a way to purchase a home if you are unable to qualify for a conventional mortgage.

Many seniors downsize and use the majority of the proceeds from the sale of their home to buy a new one. The seniors then put all their cash into equity that they cannot access or grow. A reverse mortgage is a way to keep a lot of your cash working and available. It’s important to have cash reserves in case of an emergency.

HP4 HECM, AKA Reverse Mortgage, features are:
•Homeowners retain full ownership of the property.
•There are no monthly mortgage payments.
•The HECM is a non-recourse loan, so borrowers will never owe more than the value of the home.
•The borrower chooses from multiple payment options including No Monthly Mortgage Payment.  Taxes, HOA, and Insurance payments are required to be paid by the borrower unless a Loan Escrow set aside is established.

The Best Reason? Get what you really want.

Maybe you CAN afford your dream home

Even if you are financially sound and searching for your forever home, you will need to be cautious about how much you spend to ensure you have the financial means to continue living with dignity. A reverse mortgage allows you to spend more on your forever home because you no longer have to pay mortgage payments. You can make it your forever home.

In the event of a collapse in housing, you will be protected for as long as you remain in your home as you will never owe more than it is worth. Reverse mortgages are designed so that you can stay in your home and the loan will not become due. You can still live in your home even if you are 120 years old. The bank cannot collect more than your home’s value, so it doesn’t matter if the housing market crashes. The lender cannot ask you to move out of your home. They can’t collect the loan amount and can’t take your house.

Do You Need a Reverse Mortgage to Buy a House?

You should consider a Reverse Mortgage for purchase so that you can move closer to your grandkids’ home if you are over the age 62.

A reverse mortgage is a great option if you live in a multi-story house and wish to downsize to a one-level home but are unable to qualify for conventional mortgages.

A reverse mortgage is a great option for those who have a large nest egg and are concerned about the possibility of losing it to a conventional mortgage because you have to make payments for the rest of your life. The reverse mortgage will help you plan your retirement financials.

A reverse mortgage is a great option if you’re looking for your forever home but don’t have the budget to pay it. You deserve to live your golden years in dignity and comfort.  You can basically put half down, enjoy the future appreciation, and never make a mortgage payment.

Bottom line: With a reverse mortgage, you can buy a home

It’s clear that you can purchase a home with reverse mortgages. This is true no matter if you are very well-healed or sometimes struggle with your payments. Compare reverse mortgages and lenders to ensure you find the right one for you.

Retirement can offer more than you might think. You can have more comfort, stability, cash and home, if you choose. It is up to you.

Reverse Mortgages – Federal Trade Commission

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Richard Woodward, NMLS 217454

Your Local, Direct, 5 Star Rated Mortgage Lender, Specialty Lending Manager

Office:  (214) 945-1066

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What are the downside to a reverse mortgage?  The only real downside I can see is the mortgage insurance cost.  It is 2% of the appraised value at closing and .50% of the outstanding balance monthly. However, this does provide borrowers with the piece of mind to know that they, nor their heirs will ever own more than the home is worth at the time of paying off the loan.

What is the catch  with reverse mortgages?  There is no catch.  It is a legally binding mortgage contract administered by HUD to help seniors access the equity they have worked so hard to acquire.

Who owns the house in a reverse mortgage?  The answer is you.  It is just a mortgage, it is NOT a transfer of title.

Can I sell my house with a reverse mortgage?  Absolutely, it is your home. Just call your loan servicer and find out what your payoff is, just like any mortgage.

What happens to a home with a reverse mortgage when the owner dies?  The owner’s heirs inherit the home just like any home that has a mortgage on it.  The hiers need to contact the mortgage servicing company to arrange payment of the mortgage balance due.  They have up to 12 months to refinance the home into their name or sell the home.

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