Although many seniors are familiar with reverse mortgage loans, the reverse for purchase option remains under-utilized. Getting your facts straight and understanding the reverse for purchase could have large scale benefits for your retirement.
A reverse for purchase allows homeowners to access the equity in their current home, then use the loan to purchase a new property under one closing with zero monthly payments* just as you would with a traditional reverse mortgage.
Common uses for a reverse for purchase are:
- 1. Downsizing
- 2. Moving closer to family
- 3. Relocating to a warmer location
- 4. Lowering the cost of living during retirement
Borrowers qualify for a reverse for purchase in the same way that you would qualify for a traditional reverse mortgage –the youngest homeowner must be at least 62 years old and you need to have sufficient equity in your home. As the homeowner, you will be expected to pay taxes and insurance on the new home just as you would for a traditional reverse mortgage because you remain on title of your property.
A reverse for purchase will require the borrower to pay a minimum of 40% as a down payment on the home. This percentage is determined by age so the older the homeowners, the less you will have to put down.
Like any reverse mortgage, the reverse for purchase remains a non-recourse loan meaning that your home cannot go into foreclosure as long as you are still living in it. As a HECM (Home Equity Conversion Mortgage) loan, you will never owe more than the value of your home when it comes time to repay the reverse mortgage.
The loan will become due when both homeowners pass away or decide to leave the home. At this time, you or your heirs will pay back the cash advances you have received plus accumulated interest and any upfront costs that were initially financed into the loan balance. Typically, the loan is paid back by selling the home. However it is up to your heirs to decide whether or not they want to sell the home. If instead they wish to keep the home in the family they can certainly do so by refinancing the existing reverse mortgage to a conventional mortgage loan. If your heir choose to sell the property and the proceeds exceed the amount of the home, they can keep the difference. On the other hand, if the proceeds are not sufficient to pay off the loan, the bank will absorb the difference. This is just one of the advantages of being a HECM loan.
A reverse for purchase could be the fastest, most cost-effective option for homeowners who plan to live in a new home for most of their retirement years.
Check out these previous blog posts to answer any more of your questions:
- 1. Tune in Tuesday – Reverse for Purchase 101
- 2. What kind of down payment would I need to purchase a home with a reverse mortgage?
To learn more about the reverse for purchase program for yourself or a loved one call one reverse mortgage for more information.
*Homeowner is still responsible for taxes, insurance and property maintenance.