Should You Use a Reverse Mortgage to Purchase a New Home?

Seniors are now able to use a reverse mortgage loan to purchase a new home. This was not always the case. The option to purchase with a reverse mortgage loan began just this year, January 1, 2009. The "HECM for Purchase Program" is a government response associated with the down turn in the US economy.

This new "HECM for Purchase Program" serves two related purposes. First it allows seniors a chance to relocate if circumstances require them to move. Second, it stimulates the purchase market and helps to absorb the excess inventory of homes.

Usual Reverse Mortgage Guidelines Apply

• The youngest borrower must be at least 62 years old.
• Property must be occupied as a primary residence.
• There are no income or credit requirements to qualify.
• Acceptable property types include: 1-4 units, condominiums, fully completed new construction, land contracts
• Ineligible properties include: cooperatives, boarding houses, older or non-compliant manufactured homes

Guidelines Specific To a Purchase Reverse Mortgage

• Any cash the homeowner brings to the transaction must be seasoned at least 60 days. That means newly found money such as an inheritance or other windfall must be on deposit at a bank for at least two months.
• No gift funds are allowed.
• If proceeds from the sale of a property are used for a down payment, the borrower must provide the reverse mortgage lender with the HUD-1 closing statement.

Example: Use A Reverse Mortgage To Purchase A New Home

Marvin Schmidt is 70 and rents in New York. He has saved $250,000. The home Marvin wants to buy is going to cost $250,000 but he doesn't want to put everything he has saved into the new home. Marvin decides to take out an HECM for Purchase. At his age, he can borrow approximately $150,000 on a $250,000 home. Taking the $150,000 from the HECM for Purchase and $100,000 from his savings, Marvin is able to buy the home. He now owns his $250,000 home, has kept $150,000 of his savings, and has no mortgage payments.