Using a Reverse Mortgage to Purchase a Home
A reverse mortgage that will be used for purchasing a new home will require that people pay a down payment on their house. While a traditional HECM does not require any type of down payment, the home purchasing program does mandate that people pay this amount upfront. Likewise, unlike a reverse mortgage on an existing home, people must fund the equity in their home upon purchasing it. When they use this program to buy a home, they will not have any equity in their home right away. Instead, they will be required by the program to pay at least half of their home’s cost upfront. The loan will then be used to pay the remaining half. In essence, they are putting their own money into the equity that will be used to underwrite the HECM.
Equity Funding Restrictions
Many people would assume that they could apply for a bank loan to cover the cost of half of their new home. However, the HECM for Purchase program dictates that people cannot borrow money to pay this obligation. Rather, the money must come from either the sale of their existing home, their savings, or money that they borrow from friends or relatives, among other possibilities. The money cannot be obtained through any kind of formal bank loan because the reverse mortgage must be the only loan on the house at the time of the applicants’ approval.
Other HECM for Purchase Criteria
Like the traditional reverse mortgage program, this finance option also comes with criteria that must be met during the life of the loan. For example, people who use a reverse mortgage to buy a home will not be required to make monthly house payments. However, they also cannot take out another home equity loan on the house until they pay off the existing HECM. Likewise, they cannot will the house to their next of kin until the loan is paid off, nor can they use the home as a business or rental property.
Seniors who use this finance option also must use the home as their primary residence and keep the house in good condition. Their lender may require them to have money set aside to pay for repairs, maintenance, and other homeowner expenses. They also must pay the annual taxes on their house, as this expense will not be absorbed by the loan.
A growing number of senior citizens want to buy new houses during their retirements. They can now do so successfully by taking advantage of the reverse mortgage for purchase program. They can be approved for this unique type of financing by understanding and adhering to these requirements. Use the reverse mortgage calculator to better see what you may qualify for.