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Using a Reverse Mortgage to Purchase a Home
Reverse Mortgages have always been a great way to turn the equity in your home into tax free cash – without having to make monthly loan payments. Recent changes by Congress to the FHA-insured Reverse Mortgage program now allow seniors to buy a home with a Reverse Mortgage – with no credit score requirement or income verification! *
Although this sounds too good to be true, Americans 62 and older can now use the equity from the sale of their previous home, or other cash or savings, to move into a different home – just with a single down payment. With a reverse mortgage you don’t make loan payments with a reverse mortgage, because the loan is not due as long as live in your home as your principal residence and you maintain it according to FHA requirements. As with all mortgage loans, you are required to pay your property taxes and homeowners insurance. Imagine the financial independence you can achieve by eliminating your mortgage payment once and for all. Best of all, if the untapped equity in your home increases over time, you or your heirs still “own” that equity – not the bank.
The Reverse Mortgage Home Purchase Process
Purchasing a home with a Reverse Mortgage is very similar to purchasing a home with a conventional mortgage, with two minor exceptions. Rather than determining a down payment based solely on the purchase price, the minimum down payment will be based on a factor of your age, interest rates, and the lesser of the home’s appraised value, purchase price, or FHA-imposed national lending limit. Once an offer is accepted, your Reverse Mortgage Advisor will work with the seller or seller’s agent to open escrow with a title or escrow agency familiar with Reverse Mortgages. In some instances, a conventional title company will be able conduct Reverse Mortgage transactions – your Reverse Mortgage Advisor will be able to determine which title companies can do this for you. Reverse Mortgage appraisals, inspections, contingencies, documents, and closings are virtually the same as those with a conventional mortgage. Because of the HUD-required independent borrower counseling, some Reverse Mortgage escrow periods may be slightly longer than that of a conventional mortgage –although this isn’t always the case.
Eligibility Requirements
The basic eligibility requirements to purchase a home with a Reverse Mortgage are:
- All titleholders must be aged 62 or over
- The purchased home must be your principal residence
- The purchased home must meet HUD’s minimum property standards and be either a single-family residence, a residence in a 2- to 4-unit dwelling, certain condominiums, or an eligible manufactured home.
- The down payment must be from qualifying sources
- You must complete a HUD-approved counseling session
Calculating the Minimum Down Payment
Because the funds available from a Reverse Mortgage are dependent on a number of factors, there is no single “rule of thumb” to determine the minimum down payment amount. The calculation to determine how much is available is based on the following:
- The age of the youngest borrower on the title
- Current interest rates
- The lesser of the home’s appraised value, purchase price, or FHA-imposed national lending limit
- Loan fees
The older the borrower, the less will be required for the down payment. Based on current interest rates, a 65 year old borrower would typically need a down payment of roughly 35%-40% of the purchase price of the home.
* some exceptions may apply
Click here to download the Introduction For Home Buyers Brochure (PDF)
