by Peter Nastasi, Sierra Pacific Mortgage
Many mature adults would like to continue to live independently and remain homeowners but their current home may not be ideal. They may want to right-size to an all-on-one-floor, maintenance-free home in a community that offers a more carefree lifestyle. A Home Equity Conversion Mortgage (HECM, reverse mortgage) can help increase purchasing power and flexibility for homeowners aged 62-plus years, which are looking to purchase their next home.
The HECM for Purchase is a Federal Housing Administration (FHA) insured home loan that enables homeowners to use the equity from the sale of a previous residence to buy their next primary home. Home buyers only make one initial loan investment, the down payment, towards the purchase of the home. They may also eliminate monthly mortgage payments, improve their monthly cash flow and preserve their savings with a reverse mortgage loan. There are a few different ways to use a reverse mortgage loan when buying a home:
PAY ALL CASH FOR THE HOME, THEN TAKE OUT A REVERSE MORTGAGE
The simplest way to purchase a home is to pay all cash. It also gives home buyers the option of choosing a pre-owned home or new construction. However, many homeowners may need to liquidate other assets to get the cash. A reverse mortgage loan can help them replace some of those depleted assets by improving overall monthly cash flow.
BUY THE HOME WITH A CONVENTIONAL MORTGAGE AND THEN PAY IT OFF WITH A REVERSE MORTGAGE
Homeowners that cannot make all cash purchase for a home typically need obtain a conventional mortgage. However, if the mortgage amount is small enough it may be paid off with a reverse mortgage loan. Thus, homeowners can still eliminate their monthly mortgage payments. However, to obtain a conventional mortgage, the buyer would need to qualify and this may be difficult to mature adults with insufficient income or poor credit. Also, there would be settlement costs for both the conventional and reverse mortgage loans.
PURCHASE THE HOME AND OBTAIN A REVERSE MORTGAGE AT THE SAME TIME
With the HECM for Purchase (reverse mortgage loan), buyers can purchase a home and take out a reverse mortgage loan at the same time, incurring only one set of settlement costs. Closing costs are similar to a regular FHA insured mortgage and are financed into the mortgage. Loan amounts vary and the amount a buyer is required to bring to the home closing will vary depending on the youngest borrower’s age and the purchase price of the home. Qualifying for a HECM for Purchase loan is typically easier than qualifying for than a conventional mortgage.
Reverse mortgage loans are designed to easily allow mature adult buyers to purchase a home that suits their lifestyle. The home must be the buyer’s primary residence or for new homes, the buyer must physically occupy the home as a primary residence within 60 days of the purchase.
Peter Nastasi, Branch Manager Rhode Island Licensed Lender #20072187LLB02 #20072185LB Branch NMLS ID: 289053 Direct: 401-533-5390 | Office: 401-270-1740 | [email protected]