February 24th, 2010
A Home Equity Conversion Mortgage (HECM) can be used to purchase another home if you plan to live in it as your principal residence. Does it make sense to use reverse loan proceeds to buy a foreclosure property? Here are some things to keep in mind.
- Do your research before committing to purchasing a foreclosure. Search public records to see if a house has liens for unpaid property taxes or other bills. Also look at property records in the neighborhood to get an idea of what similar homes are going for in that market.
- Many foreclosures need repairs or maintenance that owners have let slide because they couldn’t afford to do the work. Be prepared to use some of the proceeds from a reverse home mortgage to do this work if you don’t have other funds available.
- Use reverse mortgage funds to buy a bank-owned property that has already gone through the foreclosure process. Unless you really know what you’re doing it’s best to avoid getting involved with a house where the homeowners are still living in it.
- Contact home builders in the area you want to live in. You just might find a brand new home that in foreclosure that you can get at a bargain-basement price. Also ask mortgage lenders if they have a list of brand new construction that has already gone through foreclosure.
- Consider using a real estate agent who is familiar with foreclosure activity in your housing market. An agent may have a list of homes that he or she has already seen and can steer you away from homes you aren’t interested in pursuing, such as those that require too many repairs.
Reverse Mortgage Can Help You Downsize
When considering using the proceeds from a HECM to relocate, it’s a good idea to downsize to a less expensive home. Avoid purchasing any foreclosure that strains your budget and leaves you in worse financial shape than when you started. Begin comparing reverse mortgage loan quotes to get an idea of how much you qualify to borrow to determine if it can cover a move.