You've probably heard about reverse mortgages as many older homeowner's have taken advantage of them to refinance their existing mortgage or increase their cash flow and remain in their home. But many retirees don't realize the opportunity they have to purchase a new home with the HECM reverse mortgage purchase program. So often, you can improve your living situation with a new home by moving closer to family, owning an energy efficient home, moving to a single level, active adult community, moving to a milder climate or many other reasons. Often, people use the Reverse Mortgage Purchase Loan to buy a home they couldn't otherwise afford while still eliminating mortgage payments. Utilizing the Reverse Mortgage for Purchase, you can realize the benefits of a reverse mortgage with no monthly mortgage payments and a move to a new home in a single transaction.
To qualify, you must be at least 62 years old, but if you have a younger spouse, you can take advantage of the new non-borrowing spouse rules for the FHA Insured HECM Reverse Mortgage. The down payment is higher than traditional mortgages for the simple reason that you don't have to make mortgage payments, so the equity in your home is used to pay the loan back after you leave the home permanently. Because no payments are made while you live in your home, you must have equity from the beginning. The younger you are, the more money you need to contribute to the transaction because of your longer life expectancy. The income qualification is lower than traditional mortgages because there are no mortgage payments added to your debt ratio. With the new HECM Financial Assessment guidelines in place, you must show a good payment history for past housing & debt expenses.
Eligible property types are single family residences, new construction where certificate of occupancy has been issued, HUD approved condos and townhomes. Allowable down payment sources are, cash from savings & investments, gift from family members or proceeds from the sale of an existing home or asset. Funds that are borrowed such as seller financing or credit cards are not allowed as a funding source, nor would a subordinate lien be allowed. Closing costs must be paid by the buyer and seller concessions are not allowed. If repairs are called out on the appraisal or other inspections, the seller must complete the repairs prior to closing.
To determine the down payment requirement, the age of the youngest borrower is used in the reverse mortgage calculator along with the purchase price and expected interest rate. Down payment is typically 40% to 50% of the value up to a maximum claim amount of $625,500. If the home is a higher price, your down payment will increase dollar for dollar above that FHA maximum home value limit.
Since the implementation of the Financial Assessment rules, many people have been concerned about the length of time it will take to close the HECM Purchase Loan, but with a properly written purchase agreement and educated buyers and real estate agents, the transaction can close quickly. Many agents and sellers fear the reverse mortgage simply because they don't know how they work or they heard stories of transactions gone wrong. In most cases, the transactions went wrong because they worked with a reverse mortgage specialist who wasn't experienced or knowledgeable about the process. I have been originating the HECM Purchase Loan since inception of the program years ago. My most recent transaction closed in 30 days and that included the financial assessment evaluation. Real Estate Agents should take interest in this program as it increases their customer base and provides their buyers with more funds available for pricier homes. Let's face it, most buyers what the 'nicer' home! I am here to help with offices in Reno, Nevada and Danville, California, so give me a call! Maggie O'Connell 800-684-9438