Can you use a reverse mortgage to purchase a home?

Most everyone has heard about a reverse mortgage. But, there’s a type of reverse mortgage that very few people are aware of. It’s formally called the Home Equity Conversion Mortgage for Purchase (HECM). In fact,  this allows older Americans to buy a new home by taking a reverse mortgage on it.

By using a HECM for purchase, seniors (age 62 and older) can purchase a new primary home. As a result, the buyer wouldn’t be required to make monthly mortgage payments. Senior homeowners can use the proceeds from a HECM for purchase, plus the cash received  from the sale of a previous residence, to buy their next primary home. The entire process is completed in a single transaction.

You can use a reverse mortgage to cover between 47 to 52% of the purchase price. As a result, the buyer needs to come up with the balance from savings, sale of an existing house or gift money.

You’ll need to know that the title to the house will remain in the buyer’s name. However, the mortgage lender will retain an interest in the property. Even though no monthly payments are due,  the loan needs to be repaid when the home is sold or the buyer moves or dies. At that time, the lender gets repaid the amount borrowed plus interest. If there is any remaining Equity, it goes to the homeowner or their  estate. In the event the principle and interest exceed the home’s value, the lender is insured against the unpaid balance and no payment is due.

When you’re ready to either buy or sell a home, contact us.