HECM (Reverse Mortgage) for Home Purchase
- Offered to seniors wanting to purchase a home without using all their personal resources they may have gained from the sale of a previous home or from their retirement accounts.
- Best utilized when downsizing from a larger home to a smaller one (or moving into your dream retirement home on the coast/golf course or in the mountains).
- The down payment and amount of the mortgage you can qualify for is based on the sales price (or value) of the new home, the borrower’s age and the current rates of the day.
- There are currently no income or credit requirements (as long as there is no other real estate owned), but the lender will verify the funds necessary for the down payment and closing costs as well as conduct a Financial assessment. As part of the Financial Assessment, the borrower will need some additional documentation including such things as:
- Income and tax forms (paystubs, W2’s or 1090’s, social security or pension awards letters)
- Payment history for various debts if not included on the credit report
- Documentation of assets currently owned or in the bank (monthly or quarterly bank statements)
- There are NO monthly mortgage payments (homeowners must keep property taxes, insurance and HOA dues paid current) and repayment of the loan does not occur until the last borrower no longer lives in the home.
- Interest and FHA Mortgage Insurance is all added to loan balance and loan repaid upon sale of the home or the heirs may refinance the home into their name.
- There is NO recourse to the borrower or their heirs if the loan cannot be repaid once the last borrower is no longer occupying the home as their primary residence. You will never owe more than the home appraises for.
- If you put down MORE than required as a down payment, the remaining equity can be left in a line of credit and drawn from at any time in the future.
- If the home is NEW construction, you may NOT start the reverse mortgage counseling, do the loan application or an appraisal until the certificate of occupancy or similar is issued.
Gordon and Joanne have recently sold their 3,000 square foot home and are looking to downsize to a townhome on the golf course. Gordon is 70 and Joanne is 69. They have netted $185,000 from the sale of their home and are looking at a new home sales price of $275,000.
Gordon and Joanne take out a HECM (Reverse Mortgage) for Purchase based on the sales price or market value (whichever is lower) of the new townhome. They qualify based on Joanne’s age for $155,100 based on the Reverse Mortgage Lump Sum program. The new townhome sales price plus applicable closing costs total $290,279 (without any escrow holdbacks.) So the difference between the total costs and the amount of the Reverse Mortgage is $135,179. This is the amount of cash required by the buyer at closing.
This leaves Gordon and Joanne an additional $49,821 to put in the bank to assist with future financial needs, home improvements or payment of taxes and insurance.
There are three other purchase options that they may consider also including leaving funds available in a growing line of credit.