A Reverse Mortgage can be a great financial tool for anyone over the age of 62. One of the great benefits about a reverse mortgage for many is the fact that a monthly mortgage payment is not required.* This is also true if you wish to purchase a new home and don’t want to make a monthly mortgage payment on it.
For a buyer who is 62 or older, you can use a reverse mortgage to purchase a home and not make a monthly mortgage payment for as long as you live in the home.* This can be beneficial for someone who is looking to move closer to family or friends, downsize their home, move to warmer climates, or move into a home that better suits their physical needs.
The great thing about a Reverse Mortgage for Purchase is that you can give yourself the best of both worlds. A new home and no monthly mortgage payment,* which may free up your monthly income to use on other expenses, debts, or to build an emergency fund.
One thing to consider is the required down payment. As is the case with any home purchase, a down payment on the home is required. And with a reverse mortgage, the down payment is more substantial than a traditional mortgage may require. Typically – and depending on age – this can be around 40%. Some people may see this as a deal breaker, while others see how much they are saving monthly with no mortgage payment and proceed with their application. It really depends on your financial situation and your future goals.
One question that gets asked all the time is, “Other than having no monthly mortgage payment, why else do people choose to purchase a home with a reverse mortgage?” Here are a few other reasons:
- It is a federally-insured loan.
- They remain on the title and the owner of the home.
- It may allow the buyer to afford more home than they originally planned.
That last reason is a big one, in our opinion. Take this very basic example: John Smith is considering buying a home. His home is worth $200k and he currently does not owe a mortgage. He could sell his home for $200k, and buy a home at $200k or less and own it free and clear. Or, he could get a reverse mortgage, and put that $200k from his sale down on a home that is $400k and still not have to make a payment while he is in the home.**
Just as we say about any of our reverse mortgage products, the reverse mortgage for purchase option is not for everyone. The down payment requirement should be taken into consideration when deciding whether to purchase a home with a reverse mortgage. Your required counseling session will help with that, as well as speaking to one of our licensed specialist and other people you trust.
*Homeowner is still responsible for taxes, insurance and property maintenance. ** This example is for illustrative purposes only, please consult with your financial advisor.