What Are Reverse Mortgages for Purchase?
Reverse mortgages for purchase are loans that allow seniors aged 55+ (in most states), to buy a new primary residence using loan proceeds from a reverse mortgage. Reverse mortgages for purchase do not require mortgage loan repayment until the borrower permanently leaves the home. With a reverse mortgage for purchase, a senior can maximize their purchasing power or spend less cash on their next home.
Two Main Types of Reverse Mortgages
The two main types of reverse mortgages are the FHA-insured HECM program and the various proprietary programs offered by lenders. The HECM program, which stands for "Home Equity Conversion Mortgage" is different than the proprietary programs as it can only be used by clients aged 62+ and most proprietary loans are available to clients as young as 55 in most states. Give us a call to learn the details about your state. HECM reverse mortgages and some proprietary reverse mortgages can be used to purchase a new home with no monthly mortgage payments, your reverse mortgage broker can guide you to the option that suits your situation best.
Is a Reverse Mortgage For Purchase Optimal For You?
When deciding on how to purchase your next home- with cash, a traditional mortgage with required monthly mortgage payments, or a reverse mortgage with no monthly mortgage payments ever required, consider this:
Real Estate Agents who know how the reverse mortgage for purchase works can help their clients realize this increased purchasing power. There are many different reasons a senior may be hesitant to sell their home that a reverse mortgage for purchase could help overcome, including:
-They don't think they can afford another home with the increase in property values.
-They don't want to take on a new monthly mortgage payment.
-They may think they won't be able to qualify for a traditional mortgage loan.
-They may not realize what they could buy with the expanded purchasing power the reverse mortgage for purchase allows.
If you are a homeowner aged 55+ and considering selling your home or a real estate agent who works with seniors, reverse mortgages for purchase may help maximize proceeds to purchase a new primary residence with no monthly mortgage payments.
A reverse mortgage is a complex financial tool. When deliberating whether it’s a good fit, guidance is best left to the experts with the most experience. Northwest Reverse Mortgage has a fiduciary responsibility to ensure this program is a great fit for each client. We take the time to provide informed and reassuring guidance to ensure this step is taken in a professional and friendly manner, and that you enjoy an outstanding lending experience.
How Do Reverse Mortgages for Purchase Work?
With a reverse mortgage for purchase, people can take out a reverse mortgage and buy a new home in the same transaction. Usually, homebuyers have a large cash down payment that is about 40-70% of the new home's purchase price. They then use the reverse mortgage loan to borrow 30 to 60% against the home equity of the new property to complete the purchase of their new home. The homeowners are not required to make any monthly mortgage payments as long as they continue to meet all terms of the loan.
How Can You Use a Reverse Mortgage for Purchase?
Reverse mortgages for purchase are solely used to buy a new primary residence for clients aged 55+. At Northwest Reverse Mortgage, we do reverse mortgages for purchase in Oregon, Washington, California, and Idaho.
Reverse Mortgage for Purchase and Eligibility Requirements
To qualify for a reverse mortgage for purchase, the following qualifications must be met:
- One borrower must be aged 55+ (in most states)
- The new home must be used as the primary residence
- The property must be a single-family home, townhome, or approved condo
- The difference between the purchase price of the new home and the loan proceeds must be paid in cash from qualifying sources such as the sale of a prior residence, homebuyer’s other assets, or savings
- Borrowers must complete approved 3rd party counseling prior to taking an application
Reverse Mortgage for Purchase Repayment Requirements
Clients can choose to repay as much or as little as they like each month or make no monthly mortgage payments. The flexible repayment feature makes it easier for a buyer to afford the home they really want, preserve more savings and retirement assets, and improve cash flow. As with most mortgages, the borrower must keep current with property-related taxes, insurance, and maintenance as part of their ongoing loan obligations. Repayment is generally required once they sell the home, pass away, move out, or fail to meet the loan obligations.
What’s Different About HECM for Purchase vs. Proprietary Reverse Mortgages?
HECM for purchase loans are commonly referred to as H4P loans. These loans are FHA-insured reverse mortgages that allow clients aged 62+ to borrow against the equity of a new home to allow them to buy a home without a monthly mortgage payment. These loans have mortgage insurance which leads to higher closing costs than the proprietary reverse mortgages. HECM reverse mortgage for purchase loan amounts can not exceed $1,089,300 but proprietary loans can go up to $4,000,000. To read more about how proprietary loans compare to HECM's, check out our page about proprietary programs HERE.
Purchasing a Home with a Reverse Mortgage
Down Payment Requirement
Reverse Mortgages for Purchase require a down payment of between approximately 30% and 70% of the purchase price, depending on the buyer’s age or Eligible Non-Borrowing Spouse’s age, if applicable. (This range assumes closing costs will be financed.) The rest of the funds for purchase come from the reverse mortgage loan. This allows the buyers to keep more of their cash to use as they wish, as compared to paying all cash, while still having the flexibility of no required monthly mortgage payments.
How Are Loan Amounts Calculated?
The loan amount is determined by the age of the borrower, the current interest rate, and the value of the home they intend to purchase. This calculation is determined by the Department of Housing and Urban Development (HUD) and/or the lenders who offer proprietary reverse mortgages. †These are age-based loans that allow older borrowers to qualify for more in loan proceeds.
What Kind of Home Can You Buy?
This loan can be used to purchase single-family homes, townhomes, and approved condos.
Who Should Consider Reverse Mortgage for Purchase?
This program is a great fit if you:
- Are ready to downsize, up-size, move closer to family, move to a senior community, or buy your “dream home” and don’t want to take on a required monthly mortgage payment.
- Live on a fixed income; are concerned about being able to afford a new home via cash purchase or traditional financing; and/or want to avoid tapping into your retirement nest egg.
- Your current home no longer fits your lifestyle – For example, the washer and dryer are down in the basement; the yard is too big to take care of; you need or prefer a one-floor living situation. You want a new home that’s a better fit for your needs.
- You want to increase your purchasing power to buy the home you really want, with the amenities you need or desire.
- You want to preserve some of the proceeds from the sale of your home as cash or other retirement savings.
Frequently Asked Questions
When does the reverse mortgage have to be repaid?
Although reverse mortgage loans don’t require a monthly mortgage payment, borrowers can make payments as they want. Repayment is generally required once they sell the home, pass away, move out, or fail to meet the loan obligations.
What are the benefits of a reverse mortgage for purchase?
There are many benefits to a reverse mortgage loan, including:
- Buying a home that better fits your needs
- Purchasing a new home while saving more money
- No monthly mortgage payments for the life of the loan
Who is eligible for a reverse mortgage for purchase?
Borrowers must be at least 55 years of age in most states and meet specific income and credit requirements.
How does the seller get paid?
As with a traditional mortgage, the funds from the reverse mortgage for purchase are paid directly to the seller at closing through the title company, and the borrower repays the loan.
Where can I learn more?
You can fill out a quote form on this page or call Northwest Reverse Mortgage at (503) 427-1667 to speak with our team.
Is the reverse mortgage for purchase interest rate fixed or variable?
Interest rates can be fixed or variable depending on the loan program you choose.
How is the down payment determined?
A downpayment for a reverse mortgage for purchase is determined by the age of the youngest borrower, the purchase price of the new home, and current market interest rates. Our reverse mortgage brokers can run the numbers to see what you may qualify for. Just give us a call or email.
What are the borrower’s obligations?
As with all reverse mortgages and most traditional home loans, borrowers are responsible for homeowners’ insurance, maintaining the home to FHA standards, and paying property taxes.
Speak With Northwest Reverse Mortgage About a Reverse Mortgage for Purchase Loan
No matter if you know a reverse mortgage for purchase is right for you or you still have questions, our reverse mortgage team is ready to help you every step of the way. Contact Northwest Reverse Mortgage to discuss your reverse mortgage for purchase options today. Rates can change weekly so it's important to stay on top of the market and in touch with your broker while shopping for a new home.