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Using Reverse Mortgages for Purchase of HomesThe Department of Housing and Urban Development created another option for reverse mortgages in early 2009. Home Equity Conversion Mortgage (HECM) or Reverse Mortgages can be utilized to allow the borrower to purchase a new home. This new option can be used to downsize their existing house, move closer to children or even relocate to a warmer climate. The requirements to use a Reverse Mortgage for home purchase include utilizing the home as the primary residence and can consist of a single family, 1-4 multiple family, condominium or a HUD approved manufactured home. The home can be newly constructed as long the home has a certificate of occupancy. Additionally, there are no income or credit qualifications to be eligible for a reverse mortgage to purchase a home. Since there are no monthly mortgage payments, this can be a great option for borrowers who were not able to qualify for a conventional mortgage due to poor credit history, high debt to income ratios or living on a fixed income. The amount of available funds for which a borrower can qualify are determined by the borrower’s age, current interest rate and the lesser of the new home’s sale price or the appraised value of the home. Borrowers must provide a downpayment on the new home which can come from savings, the sale of their home or liquidation of retirement funds. The reverse mortgage can be utilized to pay the remaining cost of the home. Closing costs can also be financed into the reverse mortgage. Once an application is completed and the required HUD counseling is performed to make sure the borrower understands how the reverse mortgage works, the process to purchase the home can commence. Once approved, the borrower can look forward to their new home. They will still be responsible for taxes and insurance, but they will not have any monthly payments as long as they live in their home. Since the government requires insurance on the reverse mortgage loan, the estate can never owe more than the home is worth when the note becomes due. This new reverse mortgage option for borrower’s over the age of 62 allows a wonderful opportunity to utilize the equity in the new home with a downpayment and no monthly payments. |
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