When a Reverse Mortgage for Purchase Is the Most Beneficial Option for Seniors

Seniors are commonly told that reverse mortgages are not short-term loans. If an individual plans to move in the next few years, a reverse mortgage will probably not be his or her most economical option. In the past, seniors who planned to move in the near future did not have a reverse mortgage option available to them. Fortunately, this is not the case today.

Currently, seniors who wish to downsize or move closer to family can take advantage of the HECM for Purchase program. The Reverse Mortgage for Purchase, or HECM for Purchase, program is a very unique program that lets seniors purchase a new residence while simultaneously taking a reverse mortgage on the property. Like the HECM Standard and HECM Saver, the HECM for Purchase is insured by the Federal Housing Administration (FHA), making it a safe choice for seniors.

An Overview of the HECM for Purchase Program

An HECM for Purchase works similarly to a regular HECM. However, instead of borrowing a portion of one’s home equity, seniors place a down payment and use their HECM proceeds to pay the rest of the purchase price of the new residence. In most cases, seniors procure their down payment from the sale of their previous home. However, one’s down payment can come from the individual’s assets, gifts or the sale of other personal property.

With the HECM for Purchase, a borrower’s purchasing power will depend on the individual’s down payment, age and interest rate. Between the borrower’s HECM proceeds and down payment, he or she must be able to cover the entire purchase price of the new property. If there are proceeds left over, borrowers may choose to receive the additional funds as a lump sum, in monthly installments or as a line of credit.

The HECM for Purchase program is also similar to regular HECMs in the fact that borrowers must use the new home as their principal residence. In fact, borrowers must begin living in the residence within 60 days of closing the loan. As with all HECMs, borrowers are also responsible for their property taxes and insurance throughout the life of their loan.

Benefits Unique to the Reverse Mortgage for Purchase Program

There are several benefits to purchasing a home with a reverse mortgage. The HECM for Purchase program allows seniors to move into a new home without ever having to make a monthly mortgage payment. For many seniors, this program allows them to move into smaller or more suitable properties without putting undue strain on their finances. Since most lenders do not yet qualify borrowers based on income or credit, these loans are also available a greater number of seniors.

While an HECM for Purchase involves two transactions, borrowers only pay one set of closing costs. This program not only streamlines the loan process, but it makes these loans significantly more affordable to seniors. Seniors who want to purchase a new residence but are not in a position to take on a new forward mortgage loan may want to seriously consider this federally-insured loan program.