Retirees Can Use a Reverse Mortgage to Buy a Home
While most reverse mortgages allow adults age 62 and over to stay in their current home and forego future mortgage payments, one type of loan can be used to purchase the property. A “HECM for Purchase Loan” allows adults age 62+ to buy with a larger-than-usual down payment, with transferred equity and they skip future home payments. The rules can be complicated, and anyone considering a reverse mortgage should understand the benefits and their obligations.
For the HECM for Purchase Loan, buyers make a substantial down payment, usually somewhere in the 45% to 62% range. Once qualified for a reverse mortgage, they can then live in the new home without making monthly mortgage payments.
Older adults considering any type of reverse mortgage should fully understand the benefits and penalties before committing. The FHA-insured program has a non-recourse feature, meaning the home is the only source of repayment, regardless of the loan balance at maturity. It must also be a primary residence and buyers must participate in loan counseling.
HECM loan details vary by transaction. Older adults interested in using a HECM for Purchase Loan should make sure they understand those details and even consider how unexpected events could impact the decision, such as surprise medical issues. Homeowners must also pay non-mortgage home expenses, such as property taxes and property insurance. Failing to do so could potentially lead to foreclosure.
Information Provided from: 2021 Florida Realtors® - By Kerry Smith