Home Purchase with a Reverse Mortgage

HECM for Purchase began with the passage of the Housing and Economic Recovery Act of 2008. Prior to this legislation, if a homeowner in retirement wanted to relocate, qualifying for the new home often proved difficult. They would have to be eligible to purchase a home though traditional means, establish their residency in the home, and then refinance with a HECM if desired.    

 

Some baby boomers continue to reside in homes that are no longer ideal. Unfortunately, they are unaware of a home financing option that was built specifically for them – The Home Equity Conversion Mortgage for Purchase, or HECM for Purchase.

Older homeowners often find themselves wanting (or needing) to RELOCATE to be closer to family members, DOWNSIZE to a more manageable home, or even UPSIZE to a retirement dream home on the beach, golf course, or active adult community.

I often receive phone calls that highlight the need for this program, such as:

  • “My grandmother wants to move south to be closer to her kids and grandkids.”
  • “With my knee and hip problems, I need a single-story home, preferably one that requires little maintenance.”
  • “I want to live near my friends in a 55 and over community on a golf course.”

When physical limitations become a reality, or when individuals desire a closer connection to family, a move may become necessary. The reverse mortgage can help them move AND keep more money in their pockets.

But how does it work?

With a traditional reverse mortgage, the lender offers a homeowner a percentage of the home’s value that can be used as needed. With a HECM for Purchase, however, those reverse mortgage funds are applied to a new home’s sales price. Depending on the age of the youngest participant, the lender is generally able to contribute 50% to 75% of the purchase price.

As always, no monthly principal and interest payments are required, and the homeowner gets to retain title and ownership of the home.

Most ideal purchase candidates are selling their current homes and relocating. If they use the HECM for Purchase to finance a large portion of the sales price, the homeowners can retain more cash reserves. This is a great opportunity to supplement retirement savings.

What’s in the fine print?

Reverse Mortgages are offered for “PRINCIPAL” residences only. This means that the homeowner must occupy the home, and the HECM for Purchase cannot be used for 2nd homes or investment properties. In fact, the borrower must occupy the home within 60 days of closing.

Because this loan product is federally insured, the HECM for Purchase will always require upfront, and ongoing, Mortgage Insurance Premiums (MIP). The initial MIP will depend on how much principal is used. Therefore, it may be wise for the borrower to only use 60% of the offered funds. The remaining 40% may be left in a line of credit. This will reduce the initial, one-time, premium from 2.5% to 0.5% of the home’s value. This is called “over-funding the purchase”, and may save the borrower 2% at closing.

Lastly, please be aware that sometimes mistakes are made when a Realtor writes a sales contract for a HECM. Federal guidelines related to new construction and seller-paid closing costs for reverse mortgages can be tricky. So it’s important that the Realtor works with an experienced reverse mortgage professional who can guide everyone through the process.

Jeff Stone

Jeff Stone
Seniors Real Estate Specialist
SRES, CIPS, RSPS, CBR
Coldwell Banker Residential Brokerage
Port Washington/Manhasset NY
917-741-8294
Jeffrey.Stone@CBmoves.com
Advertisements

About Jeff Stone

I'm a Realtor with COLDWELL BANKER RESIDENTIAL BROKERAGE - Port Washington. My designations are Certified International Property Specialist (CIPS), Resort $ Second Property Specialist (RSPS), Certified Buyer Representative (CBR), Seniors Real Estate Specialist (SRES) & Realtor Short Sale Professional (RSSP). I'm the Recipient of the 2104 National, Seniors Real Estate Specialist (SRES) Outstanding Service Award. I am a former Executive Chef in the New York Hotel & Restaurant Industry. I was also a Caterer/ Business Owner, supplying foods to the Entertainment, Hotel, Restaurant & for Special Events. I love the Outdoors (kayaking and hiking), Fishing, Cooking, Art, Networking & most of all, Volunteering within my community of Port Washington, NY. Jeffreystone.realtor
This entry was posted in real estate, Reverse Mortgage, Seniors Real Estate Specialist, Uncategorized and tagged , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s