Can You Buy A House With A Reverse Mortgage
When you were younger, your home was the perfect place. Your spacious backyard, shaded by trees, provided the place for your children to run, laugh, and play. Your kitchen, along with your fully stocked fridge, continuously provided plentiful meals to feed your growing family. Your living room and den, outfitted with the television of the house, served as the family gathering spot to lure each member away from their individual rooms in order to cultivate family bonding time.
can you buy a house with a reverse mortgage
There are some aspects of the HECM for Purchase that differ from the traditional HECM reverse mortgage. Because reverse mortgages are meant to help seniors age in place, you must move into the new home within 60 days after closing, and the new home must become your primary residence.
Most seniors take out a reverse mortgage to help them stay in their existing home as they get older. But Myra Simmons, 67, took advantage of a little-known product: She used a reverse mortgage to finance a new home.
Myra's 83-year-old husband, Billy, was having trouble using the stairs in their two-story townhome in Fort Myers, Fla. The couple sold their home and used a "reverse mortgage for purchase" to move into a one-story house nearby last summer. "Now I take what would have been my mortgage payment and put it in savings," says Myra, who works for the local county sheriff's office.
The Home Equity Conversion Mortgage (HECM) for Purchase was created by Congress four years ago to streamline home-buying transactions and cut costs, says Peter Bell, president of the National Reverse Mortgage Lenders Association. Before, seniors would buy a new home, incurring closing costs, and then take out a reverse mortgage on the new home, triggering new closing costs. The HECM for Purchase rolls this into one transaction and one set of closing costs.
As with a traditional HECM, a homeowner must be 62 or older to qualify for the federally insured HECM for Purchase. You don't make payments while you live in the house, but the loan and interest come due when you sell, move out for 12 months or more, or die.
Borrowers generally get a fixed-rate, lump sum loan, which goes toward the house purchase. The balance starts accruing interest immediately. You can leave some reverse mortgage proceeds in a line of credit for future use by taking an adjustable-rate loan, and you will pay interest only on the proceeds you use.
Unlike a conventional HECM, the HECM for Purchase requires a down payment. When you take out a conventional reverse mortgage, the loan proceeds are based on the equity in your home. With the new product, you start out with no equity because you don't own the new house yet.
For there to be equity to cover the accrued interest, the HECM for Purchase requires that you pay about half the home's sales price with your own cash. The reverse mortgage picks up the difference. "Essentially, the money you're putting in is your equity," says Ted George, a certified financial planner in Scotts Valley, Cal.To pay your half, you can use money from savings, the sale of your other house, or a gift from a family member. But the money cannot be borrowed.
Like any reverse mortgage, the older you are, the more money you can get from the loan and the less you must bring to the closing table. For instance, a 62-year-old who buys a $400,000 home with a reverse mortgage for purchase must make a down payment of $159,450, according to a recent quote using All Reverse Mortgage Company's calculator (opens in new tab). He can get a loan for $250,000 at a fixed rate of 3.99%, and the proceeds will cover $9,450 in fees and $240,550 of the purchase price.
Reverse mortgage loans are often used by people who want to stay in their homes. Another type of reverse mortgage, called a reverse mortgage for purchase, allows borrowers to buy a new home during the transaction. You can take out a reverse mortgage and purchase a new home all in one transaction through the reverse mortgage for purchase program, often through the Home Equity Conversion Mortgage (HECM) for purchase program.
For those looking to move into a new home and stay there as they age, the HECM for purchase can be a very useful product. Additional reverse mortgages are available for purchase from various lenders, each with different specifications.
After getting a HECM for Purchase, borrowers must keep the home up to FHA standards, pay property tax, and keep up with homeowners insurance. HUD runs the program. The main difference between a reverse mortgage for purchase and a regular mortgage is how the home is bought. With a reverse mortgage for purchase, the borrower can buy the home in one transaction without making monthly mortgage payments.
The reverse mortgage for purchase program requires the borrower to cover the down payment on the new home purchase, which is significantly more than for a typical single-family home. In many cases, the equity from the sale of the old house can be used for the down payment on the new home. In other cases, the borrower may need to cover the down payment through savings or other means.
HECM Purchase Down Payment by AgeSales Price$300,000$400,000$500,000$600,000$700,000Age Down PaymentDown PaymentDown PaymentDown PaymentDown Payment62$208,434.91$275,703.91$341,895.91$406,621.91$472,811.9165$200,634.91$265,803.91$329,895.91$394,021.91$458,111.9170$189,834.91$251,403.91$311,895.91$371,421.91$432,911.9175$181,134.91$239,803.91$297,395.91$355,021.91$412,611.9180$167,934.91$222,203.91$275,395.91$328,621.91$381,811.9185$149,634.91$197,803.91$244,895.91$292,021.91$339,111.9190$128,934.91$170,203.91$210,395.91$250,621.91$290,811.91*Not an offer to lend. Down payment examples are approximate and include most necessary closing costs such as 2% upfront mortgage insurance & 3rd party closing costs. Interest rate used to arrive at down payment percentages 5.875% (Adjustable CMT 2.125% Margin) as of 11/30/2022. Request a free ARLO quote for exact down payment and costs associated with the state you are purchasing in as some states charge additional state specific taxes associated with purchase loans.
In this example, we will use a borrower aged 70 years old, using a reverse mortgage for a home purchase with a sales price of $400,000. The required down payment is $182,000, or approximately 45% of the purchase price. The down payment includes all upfront mortgage insurance premium and third-party closing costs. After five years of making no mortgage payments, there is still $210,000 in home equity; after 10 years, there is still $257,000.
The HECM purchase program can be an excellent option for those who want to move during retirement, as it allows them to do so without making monthly mortgage payments. However, like all loans, there are some pros and cons.
We are looking to buy a home, and signed a contract for sale for $730,000. The house appraised for just over that amount. Afterwards, we learned that the seller owes more than that ($760,000) on a reverse mortgage. Does HUD/FHA need to approve the sales price before we can close? It seems that because the sales price is within 95% of the amount owed, the seller would be able to complete the transaction. Does HUD/the lender get to keep the difference between what is owed and what the sales price will be?
Are you sure that it is a HUD HECM? That balance seems very high for the HUD loan and while it is possible that it was one of the earlier fixed rate loans for an older borrower with a full draw, it would be very difficult to get that high otherwise unless it was a jumbo or proprietary reverse mortgage and then it is a whole different animal.
If the loan is insured by HUD as would be the case with a HUD HECM reverse mortgage, then yes, the lender and ultimately HUD would have to approve the terms of the short sale (short sale being a sale for any amount short of the full amount needed to pay the loan off wherein the owner of the property is not bringing in the money to make the lender whole and is requesting the lender to take the loss and accept the sale price as payment in full).
Reverse mortgages are increasing in popularity with seniors who have equity in their homes and want to supplement their income. The only reverse mortgage insured by the U.S. Federal Government is called a Home Equity Conversion Mortgage (HECM), and is only available through an FHA-approved lender. The HECM is FHA's reverse mortgage program that enables you to withdraw a portion of your home's equity. The amount that will be available for withdrawal varies by borrower and depends on:
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With the average monthly Social Security check a scant $1,542.22 in 2022, many seniors struggle to find ways to survive in the face of rising inflation. In an effort to increase their income and remain in their homes, some turn to a reverse mortgage to access some much-needed cash.
Supplementing retirement income, covering the cost of needed home repairs or paying out-of-pocket medical expenses are common and acceptable uses of reverse mortgage proceeds, according to Bruce McClary, spokesperson for the National Foundation for Credit Counseling.
While borrowing against your home equity can free up cash for living expenses, the mortgage insurance premium and origination and servicing fees can add up. Here are the advantages and disadvantages of a reverse mortgage. 041b061a72