Reverse Mortgage for Purchase

HECM (Reverse Mortgage) for Purchase

Beginning on January 1, 2009, seniors became eligible to use a reverse mortgage to purchase a principal residence as part of HUD's "HECM for Purchase Program." The program was designed to allow seniors to purchase a new principal residence and obtain a reverse mortgage within a single transaction by eliminating the need for a second closing. The program enables senior homeowners to relocate to other geographical areas to be closer to family members or downsize to homes that meet their physical needs, i.e., handrails, one level properties, ramps, wider doorways, etc.

To Qualify for a Purchase Reverse Mortgage:

·    The youngest homeowner / borrower must be age 62 or older
·    The purchased home must be utilized as the primary residence
·    The purchased home must be occupied within 60 days of closing
·    The down payment must be paid from borrowers own seasoned cash

Additional Features of the HECM for Purchase Program:

·    Employment is not needed to qualify for the program.
·    Good credit is not required to qualify.
·    Income is not required.
·    Down payment is based on age and appraised value. The older they are the less of a down payment.
·    Gift funds for down payment are allowed
·    No monthly mortgage payment for the senior after the home is purchased.
·    The payoff balance of the reverse mortgage is not due until the homeowner moves out permanently, sells the home or passes away.
·    A reverse mortgage can not go into foreclosure. It’s considered a non-recourse loan.
·    One-to-four unit residences, Townhouse, Condo and Manufactured homes qualify
·    With a HECM for Purchase, all of the normal costs associated with selling and buying property apply as well as the normal reverse mortgage fees.
·    Most repairs aren't critical but major ones have to be taken care of before the transaction can close

There are primarily two ways to buy a home

Cash or through a Mortgage

Cash is not always the best. First there may not be enough available cash to fund the purchase and second, putting all cash into the transaction depletes a large amount of the customer’s liquidity which may not be in his best interest.

A typical mortgage doesn’t always work because he has to qualify (credit, income) for the mortgage. And what’s worse is that he has to make monthly payments which he may not be able to afford living on a fixed income.

A Reverse Mortgage offers an alternative, a Third Option to facilitate a home purchase.

Examples:

·    Downsizing – A homeowner sells the (big) home that he has owned for years. He has raised his family and they’ve all moved on to places, houses and families of their own. He desires to move into a smaller more convenient, less maintenance home. One which will be better suited for him right now in his stage of life. With a Reverse Mortgage he can sell his (big) house, use only a portion of his proceeds to put down on the new purchase and never have a house payment again.

·    Upsizing – A homeowner owns a house that is undesirable to him. Maybe it’s too small or in disrepair or in an area that he wishes to move away from. But, He has equity in the home which would be enough to serve as a down payment on a new home. With a reverse Mortgage he could “upsize” to a new home to as much as double the value…and never have a house payment again.

·    Relocating – A homeowner has retired and is moving from another city to be closer to family members. He can sell his current home, use a portion of the proceeds to purchase the new home with a Reverse Mortgage and never have a house payment again.

·    Purchase a Second (Vacation) Home – A homeowner wants to purchase a second home. A weekend home at the lake or a getaway farm or a time share…or whatever. He can convert the equity in his primary residence into cash through a re-finance Reverse Mortgage and use this cash to purchase the second property. Now he can own both properties with no monthly payments on either one.

·    Family Living Together – A Reverse Mortgage always has to be the primary residence of the senior and in his name only, but, often times the senior purchases the home (with a Reverse Mortgage) and incorporates a family member “live in” arrangement to help as an in home living assistant. The family member enjoys a roof over their head in exchange for the in home assistance they provide for the senior. The senior does not incur the typical monthly expense of home health care and will never have a house payment again.

·    Gift Funds – HUD allows a Reverse Mortgage borrower to utilize gift funds from a family member to be used for the down payment. The same guidelines apply as any other FHA loan in that this money has to be sourced and seasoned. The benefit here is that a family member can help the senior by providing the down payment and from there.. no house payments.

·    Multi Unit Properties – A Senior can purchase up to a four unit property with a Reverse Mortgage as long as one of the units is occupied by him as his primary residence. He can rent the other three, creating an income, and through the Reverse Mortgage never have a monthly payment for as long as he lives in the home.