Buying A Home With A Reverse Mortgage
Kay M. Mukaigawa
(R) ABR, CRB, CRS, GRI, SRES
President & Principal Broker
ENGEL & VÖLKERS – Honolulu
Did you know that you can purchase a home with a reverse mortgage loan? As you enter retirement and your circumstances change, you may begin to realize that you prefer to age in a new home. Maybe your children have left the nest or the house you have now no longer fits your needs – you would rather be closer to town, or in a home better suited to senior living. Or perhaps your house is simply too large. Multiple levels and huge yards may require more work and expense than you are willing or able to maintain.
Whatever your reason, there is a loan option available to seniors, age 62 or older, for aging in a new home instead of your current one. It’s the Home Equity Conversion Mortgage (HECM) for Purchase Loan which is specifically designed to allow seniors to purchase a new principal residence and simultaneously obtain a reverse mortgage within a single transaction. By consolidating the two financial transactions into one -purchasing a home and financing it with a reverse mortgage loan – you can also save money, because you incur only a single set of closing costs.
How does it work? With the HECM for Purchase Loan, you provide a down payment using the sale of your home or other savings. The equity built through the down payment and the new primary home’s value is then used to calculate your reverse mortgage loan amount.
It’s important to keep in mind that during this process you may need to meet the loan-to-value ratio requirements with a significant down payment and provide verification of personal income and funds. All of the reverse mortgage funds then cover the remaining cost of the home, just like with a traditional mortgage.
One key advantage to financing with a reverse mortgage is that instead of paying the loan back every month over time like a traditional mortgage, reverse mortgage repayment is deferred to when the loan matures. This way, you can finance the purchase of a new home without the burden of monthly mortgage payments, although you must continue paying for taxes, insurance and home maintenance. Use your current income to be financially secure in your retirement years, help your children buy their dream home, or simply enjoy life.
Single family homes and existing properties with four units or less are typically eligible for a HECM for Purchase Loan, but other property types are not, such as cooperative units, most leasehold property, and non-FHA approved condominiums.
To protect borrowers, the U.S. Department of Housing and Urban Development (HUD) has put in place these important safeguards:
• Independent counseling is required by HUD.
• Because HECMs are non-recourse loans, borrowers will never owe more than the home is worth at the time the loan becomes due.
• HUD requires a thorough evaluation of borrowers’ finances to ensure that they are able to comply with the loan terms for the life of the loan. The borrower will maintain ownership of the home as long as they pay for taxes, insurance and home maintenance and otherwise comply with the loan terms.
• Loans are available to borrowers with a non-borrowing spouse under the age of 62. Surviving eligible non-borrowing spouses can stay in the home without foreclosure as long as they comply with the loan terms.
A word of caution: Because buying a home with a reverse mortgage is very specialized, be sure to consult with a qualified and experienced reverse mortgage lender before putting in an offer on your new dream home.