Purchasing A Home with A Reverse Mortgage HECM for Purchase

Typically, retirees use HECM reverse mortgages to eliminate debt and generate additional income for home improvements or leisure ends.  But did you know that 26% of all homes sold in America are to people 55+ years old?

Many seniors choose to move into a different home as they age, whether to be closer to their families, experience new geographical areas, or for health reasons related to the climate of their current location. They may also desire to down-size (or perhaps more accurately “right-size”) to a home that is easier to maintain as their physical capacities decline. Regardless of the motivation, many seniors do choose to move in their retirement years.

The “HECM for Purchase” (aka: “Reverse for Purchase”) program is a unique way to finance the purchase a home.  It was designed by HUD in 2009 to allow seniors to purchase a new principal residence and obtain a reverse mortgage within a single transaction.   The HECM for Purchase was also designed to enable senior homeowners to relocate to other geographical areas in order to be closer to family members or “right-sizing” to homes that meet their physical needs (handrails, one level properties, ramps, wider doorways, etc.).  Regardless of your reasons for moving, you can use a Reverse Mortgage to assist.

Prior to 2009, HUD did not allow people to purchase homes with Reverse Mortgages.  Seniors were required to purchase the home on a conventional mortgage or paid cash and then had to apply at a later time for the Reverse Mortgage.  Consequently, they were subject to paying the closing costs on two separate loans.

Because the HECM for Purchase is still a relatively new way to finance, few home buyers and Realtors are familiar with the program.  In 2013, a national survey of 1,100 Realtors, only 12 Realtors (or 1.1%) knew details about the Reverse for Purchase financing option.  This undoubtedly is due to the fact that the program is relatively new; the first HECM for Purchase transaction only closed in June 2009.  Additionally, few companies specialize in the Reverse Mortgage program, and this is another reason that the HECM for Purchase continues to be unknown.

Of course, like all HECM programs, the HECM for Purchase option is reserved for those seniors 62 years and older.

Consider the following scenarios in which you plan to buy a home, have $150,000 in cash and your main objective is that you DO NOT want a house payment. (The numbers are only meant for general illustrative purposes; the older you are, the smaller the down payment required).

You have 3 choices:

1.     You buy a $150,000 home and pay cash for it.

2.     You buy a $150,000 home; put $70,000 down; finance the remaining $80,000 with a reverse mortgage. You still have $80,000 cash in your bank account as a nest egg for your future use.

3.     You buy a $300,000 home; put $140,000 down; finance the remaining $150,000 with a Reverse Mortgage and still have an extra $10,000 in your back pocket.

Buying a new home can be much more affordable if you allow yourself to explore these HECM purchase possibilities.  All three of the above options accomplish your primary goal of not having a monthly house payment!  The decision as to which of these three choices best suits your needs is entirely your decision, but now you know about a new source of purchase money financing that does not require monthly Principle and Interest payments; from that knowledge, you can now confidently consult with a HECM professional to go over the best options.

New Mexico Reverse Mortgage suggests that you and your Realtor meet with us prior to shopping for a home.  We’ll give specific numbers and other important details about the process, the policies and guidelines for a HECM for Purchase, and the nuances and specific process to purchase a house using a Reverse Mortgage that will benefit and educate both of you.