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Reverse Mortgage for Purchase – A Guide For Home Buyers

For Sale Sign On HouseWhat is a HECM reverse mortgage?

Home Equity Conversion Mortgages (HECMs), also known as Reverse Mortgage loans, were created over 25 years ago to help Americans age 62 and older convert a portion of their home equity into tax-free money. HECM reverse mortgages and insured by the Federal Housing Administration (FHA) and allow seniors to age in place and achieve retirement security.

How does it work?

A HECM for Purchase loan combines a reverse mortgage with the equity from the sale of your previous home – or from other savings and assets – to buy your next primary house in a single transaction. Regardless of how long you live in the home or what happens to your home’s value, you only make one down payment toward the purchase.

How much could I qualify for?

The loan amount based on the age of the youngest borrower, prevailing interest rates, and the value of the home you wish to purchase.

How do I qualify?

Qualifications for a HECM for Purchase reverse mortgage are based on these important factors:

  1. Your age must be 62 years old or older (a non-borrowing spouse may be under age 62).
  2. Your new home must be your primary residence (borrowers must occupy property within 60 days of closing).
  3. You must have sufficient down payment to purchase your new home.

Reverse mortgage for purchase benefits include:

√ No monthly mortgage payments (owner responsible for property taxes, insurance).

√   Increase your purchasing power.

√   Contribute toward the down payment on the home purchase.

Portrait of senior couple in smart clothes looking at camera

√   Right size to a lower maintenance home.

√   Buy a home closer to family and friends.

√   Lower your cost of living during retirement.

5 Reverse Mortgage Facts

  1. The homeowner retains the title and ownership during the life of the loan and may sell the home at any time.
  2. The loan will not become due during the owner’s lifetime as long as the homeowner continues to meet loan obligations such as living in the home, maintaining the home according to FHA requirements, and paying property taxes and homeowner’s insurance.
  3. HECM reverse mortgage loan proceeds are tax-free and are not considered income.
  4. There are no restrictions as to how the funds can be used. Many borrowers use HECM reverse mortgage funds to pay off an existing mortgage and eliminate monthly mortgage payments, pay off other debts, make home improvements and repairs or even use it as a growing line of credit.
  5. Many affluent senior borrowers with multi-million dollar homes and healthy retirement assets are using HECM reverse mortgage loans as part of their financial and estate planning, and are working closely with financial professionals and estate attorneys to enhance the overall quality and enjoyment of life.

Example number 1

You sell your existing home for $500,000

Pay off $200,000 mortgage = $300,000 cash

$500,000    –    $200,000    =    $300,00

SELL HOME    PAY OFF LOAN  CASH

You find a NEW home for $350,000  

Use $200,000 as a down payment       $200,000      Down Payment

Use $150,000 from a HECM           + $150,000    HECM to complete purchase

Complete new home purchase.

Have $100,000 at your disposal and no monthly mortgage payment**.

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Example number 2

You sell your existing, fully-paid off home for $500,000

$500,000

You find a NEW home for $350,000  

Use $200,000 as a down payment     $200,000      Down Payment

Use $150,000 from a HECM            + $150,000    HECM to complete purchase

Complete new home purchase     =  $350,000

Have $300,000 at your disposal and no monthly mortgage payment**.

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Example number 3

You have $200,000 in savings ready to purchase a new home.

$200,000

You find a NEW home for $350,000  

Use $200,000 as a down payment     $200,000      Down Payment

Use $150,000 from a HECM            + $150,000    HECM to complete purchase

Complete new home purchase    =  $350,000

Have a new home and no monthly mortgage payment**.

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New rules allows the eligible spouses of borrowers who pass away to stay in the home without foreclosure.  (The surviving spouse must continue to comply with all the loan terms**).