Using Reverse Mortgage On Home Purchase And Its Benefits
This BLOG On Using Reverse Mortgage On Home Purchase And Its Benefits Was UPDATED And PUBLISHED On August 25th, 2019
A Reverse Mortgage Purchase Loan, formally called a HECM for purchase loan:
- It helps people age 62 and older purchase a primary residence with a down payment (larger than traditional/forward loan down payment)
- Elderly homebuyers can use the HECM loan to cover the remaining cost of the purchase borrowers can live in the home for the remainder of their lives with no monthly mortgage payments
In this article, we will cover and discuss Using Reverse Mortgage On Home Purchase And Its Benefits.
Borrowers Responsibilities With Reverse Mortgages
This holds true if they comply with the loan terms;
- borrower must continue to pay for property taxes
- homeowner’s insurance
- home maintenance
- homeowner association fees if applicable
Benefits Of Reverse Mortgages
This is a great resource when:
- Buyer does not want to use all their liquid cash on a home purchase
- Buyer does not have enough funds to purchase an upgraded /updated home they truly want (For example, a newly constructed home with all the upgraded bells and whistle)
- An empty-nester wants to downsize the family home and use the sale proceeds
- A senior wants to “rightsize” their living arrangement or buy an updated home and so much more
Using Reverse Mortgage On Home Purchase And Never Worry About Making Housing Payment Again
Most people are not aware of the ability to purchase a home and NEVER have a monthly mortgage payment.
- Yet it is increasing in popularity
- This because Seniors want to downsize or purchase their retirement dream home
- A monthly mortgage payment at 62 or older is not the dream scenario
In retirement, your expenses are to be less so you can have higher retirement survivability.
- The mortgage payment is your biggest expense and the biggest factor in low retirement survivability
- Yet, shelter is a requirement for life and needs to be factored into the equations
- So why am I telling all of this?
- To give you the facts on a housing solution for a better retirement
Types Of Borrowers Who Benefits Of Using Reverse Mortgage On Home Purchase
Some examples of who could benefit and how:
Empty-nester’s who own the home free and clear but it is too much house to upkeep.
- They are on a fixed income and it is comfortable for them
- They stay because the sale proceeds are not enough to be an all-cash buyer on the new house and mortgage payment is not feasible for the budget
Empty-nester’s who own the home free and clear but do not want to use all the sale proceeds because they want a nicely padded rainy day fund.
Type Of Homebuyers Who Benefit With Reverse Mortgages
A Renter over 62 years old who is sick of the following:
- rent increases
- dream of homeownership
- has the down payment but did not buy a home because the lender denied the traditional (forward) loan due to their credit score or income to debt ratio
A 62-year-old or older person who received a lump sum of the following:
- annuity/pension payout
- insurance policy payout
- traditional savings
- or a gift of funds to make a home purchase but doesn’t because of monthly mortgage payment
A 62-year-old or older who is tired of the yard upkeep and outdoor maintenance and has considered a senior assisted living complex only to realize their financial survivability would drop below 40%.
Financial Relief Of Benefits Of Using Reverse Mortgage On Home Purchase
In each of these situations, a HECM for Purchase (H4P) would bring relief.
Here is how:
Using an H4P loan would give them the benefit of only paying the property taxes, Homeowner’s insurance, and Homeowner’s Association fee (if applicable). Just like an all-cash buyer they have NO monthly mortgage payment and the same expense/responsibilities. If this is you, contact me.
Using an H4P loan would not require the borrower to use the following:
- all the sales proceeds
- the down payment requirement for H4P is based on the new home purchase price
- the current age of the borrower
For Example, the empty-nester is a Texas Borrower who receives $410,000 in sales proceeds. They want a home with room for holiday gathering and grandkids. Using the chart below, if this was buyer 65 years old they could purchase a home with a $450,000 sale price and have a onetime total out of pocket payment of $264,000. This would leave them with $146,000 in liquid cash and new home without a monthly mortgage payment for life.
- The Renter becomes a homeowner with an H4P loan
- There is NO credit score requirement or Debt to income ratio requirement
- If this is you, stop worrying about the next rent increase and contact me
- Using the H4P loan would eliminate the monthly mortgage payment for life and could leave you with more liquid cash
- If this is you, contact me now
- They could purchase a condominium with the H4P loan and eliminate the outdoor maintenance while remaining a homeowner with a property for their heirs
- They can even purchase in an Active Senior Community (also called 55+ Community) that has an HOA fee to cover outside maintenance
Getting Started To Qualify For A Reverse Mortgage
Your personal situation may be one of these examples or not, but it is undeniable that a HECM loan is a versatile retirement tool.
So, how do you get started?
- Reverse Mortgage Borrowers need a HECM for purchase experienced loan originator like myself
- The Team at Gustan Cho Associates Mortgage are Reverse Mortgage/HECM Specialists
- It is our job to stay up-to-date on all things regarding Reverse Mortgage
- All loan officers are not HECM/Reverse Mortgage originators and will cause you unwanted delays, unwanted fees, and even loan denial due to their lack of knowledge
- Reverse Mortgage borrowers will receive a free information kit from Gustan Cho Associates
- It outlines HECM loan options and gives you details on the entire process
- Borrowers need to get mandatory Independent HUD approved counseling
- A list of providers is included in the information kit you receive
- Find a home/make an offer/send over the executed Residential Purchase Agreement/Contract.
Important Facts To Know About Purchase Reverse Mortgages
It is important to know the following for your purchase that is needed:
- The Seller cannot give you seller concessions/seller’s credit on the transaction
- No repair set-asides allowed, regardless of the repair item
- All repairs must be completed prior to closing by the seller
- The seller is not permitted to credit the buyer or reduce the purchase price for any FHA required repairs they do not wish to complete
Evidence of cleared Earnest Money deposit, along with source and season funds used verifiable for closing –
- Verification of Deposit
- 2 months of account statements
- Final Executed HUD-1 for real estate sale proceeds and/or gift funds not from the seller
Funds Not Allowed:
- Bridge Loan
- Subordinate liens
- Personal loans cash withdraws on credit cards and seller financing
The seller is not allowed to pay any fee, closing cost or prepaid on behalf of the buyer. Most notably, the following items are NOT allowed to be paid by the seller unless required by local/state law or typically required in the area.
Senior Homebuyers Using Reverse Mortgage On Home Purchase
Alex Carlucci is the author of this blog on Using Reverse Mortgage On Home Purchase. Alex is a senior mortgage banker with Gustan Cho Associates Mortgage Group. who is an expert on reverse mortgages. Alex is also a writer for Gustan Cho Associates Mortgage News and an Expert on GCA Q& A Forum. Besides being a reverse mortgage expert for Gustan Cho Associates Mortgage Group, Alex Carlucci is also an expert on all government and conventional loans. Contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at firstname.lastname@example.org.