Can I Use A Reverse Mortgage To Buy A Home?

Age doesn't matter when it comes to dreaming of a new home, right? Whether you're nearing retirement or already enjoying your golden years, you might be thinking about buying a new place. But where do you get the money for it?

Today, let's chat about whether you can use options like a reverse mortgage to make that dream a reality. So, sit back, relax, and let's talk about turning those homeownership dreams into reality!

Can You Purchase a Home with a Reverse Mortgage?

Yes, you can use a reverse mortgage to buy a home, and it's called the Home Equity Conversion Mortgage for Purchase (HECM for Purchase).

There’s no need to get a new mortgage from scratch! You can utilize your existing home’s equity, get a reverse mortgage, and then use those funds to buy your new home. Let’s talk more about this right now.

What Is HECM for Purchase?

A HECM for Purchase is a special loan designed for people aged 62 and older who want to buy a home without dealing with regular mortgage payments. The loan has to be repaid only upon your passing, when you sell the house, move out, or if you fail to keep up with property taxes or insurance.

But here's the thing - the upfront costs are higher compared to other types of reverse mortgages. You'll need to pay for things like mortgage insurance, loan initiation fees, title insurance, and other expenses. Additionally, you'll need some savings for a down payment, which could be a significant portion of the home's price depending on your age.

You can use your savings or money from selling your old home or other assets to cover these costs, but you can't borrow extra money from sources like credit cards or the seller.

So, while a HECM for Purchase can be a useful option for buying a home without monthly mortgage payments, it's essential to understand the upfront costs and how you'll manage them before making any decisions.

Pros and Cons of HECM for Purchase

Before you reach out to HECM for purchase lenders, let's take a quick peek at the pros and cons of HECM for Purchase.

✅Pros	Cons❌
With a HECM for purchasing a reverse mortgage, you might have extra money to buy your new home, along with any savings or money from selling your old house.	You need to be at least 62 years old to qualify for a HECM for purchase.
Unlike a regular mortgage, you don't have to pay back the loan or interest every month.	There are fees when you start, like around 2% of the loan at closing, plus a higher down payment.
A reverse mortgage can cover a big part of your home's cost, you might not need to dip into your savings to buy a home.	It’s not easy to build equity and your heirs might need to repay the loan to keep the house in the family.

HECM for Purchase Eligibility Requirements

To be eligible for a HECM for Purchase loan, these are the basic requirements that must be met:

1. • ➙ You are a senior citizen aged 62 or older.

   • ➙ Either own your property outright or have significant equity in it.

   • ➙ Intend to make the new home your main residence within 60 days.

   • ➙ Not have any unpaid federal debts.

   • ➙ Meet specific financial criteria related to income, assets, monthly expenses, and credit history.

Additionally, the property you're buying must meet Federal Housing Administration (FHA) standards.

This includes being in a single-family home, a two- to four-unit home, a HUD-approved condo project, or an individual condo unit. Manufactured homes are also eligible if they meet HUD & FHA's requirements.

2024 Updates of HECM for Purchase

In 2024, there are some new changes to the HECM for Purchase program by the Federal Housing Administration (FHA) that can make buying a home easier. Here's a breakdown:

• Expanded Funding Sources

  The Federal Housing Administration (FHA) is broadening the list of acceptable funding sources for HECM for Purchase loans. This means borrowers have more options when it comes to financing their home purchases.

• Permitted Interested Party Contributions

  Borrowers can now receive additional financial assistance from interested parties, such as sellers, builders, real estate agents, or mortgagees. These contributions can cover up to 6% of the sales price, easing the financial burden on borrowers.

• Introduction of Premium Pricing

  For the first time, FHA is allowing the use of premium pricing in the HECM program. Borrowers may receive a credit from the mortgagee or third-party originator to reduce their closing costs in exchange for accepting a certain initial mortgage interest rate.

• Disclosure Requirements

  Federal disclosures will ensure transparency regarding the use of premium pricing. Borrowers will receive information about the credit amount and interest rate through documents like the Good Faith Estimate and Loan Comparison Chart.

These changes aim to enhance flexibility and affordability for borrowers participating in the HECM for Purchase program, providing them with more financial options when buying a new home.

Is It Right to Use a Reverse Mortgage to Purchase a Home?

I suggest you sleep on this thought and not rush into making the decision to purchase a home. On one side, you have the freedom from monthly payments, but on the other, there are upfront costs and potential effects on inheritance, especially if you have heirs who are unable to repay the loan.

Take your time, and talk to an HECM for purchase loan officer who can help sort out your options and provide the right guidance on whether using a reverse mortgage to buy a home is the right choice for you.