Before early 2009, seniors were selling their homes, purchasing new properties, and then taking reverse mortgages. This was a long and often expensive process. To accomplish this, seniors were forced to get two separate loans. Not only did they have to sell their original home, but they had to get a conventional mortgage loan and then finally a reverse mortgage.
The Department of Housing and Urban Development (HUD) recognized this pattern and developed a program to significantly simplify the process. On January 1st 2009, HUD released the reverse mortgage purchase, or HECM for Purchase, program. This program lets seniors purchase a new home while simultaneously taking an HECM. This involves only one transaction, one set of closing costs, and sometimes leaves seniors with extra cash.
Understanding How the Reverse Mortgage Purchase Process Works
What the HECM for Purchase program does is allow seniors to purchase a new home while taking a reverse mortgage on the residence. Borrowers are not getting a reverse mortgage on their current home. Instead, they are getting a loan based on the new home they are purchasing.
The amount seniors qualify for through this program will depend on several important factors, including their age, the size of their down payment, interest rate, and the value of the new home. Borrowers must be at least 62 years old and attend a HUD-approved counseling session to qualify. These loans can be used to purchase one to four unit properties, condominiums, and approved manufactured homes.
One of the most common questions seniors have about this program is how they must come up with their down payment. If borrowers are able to pay cash, they can withdraw the down payment from their assets. However, most borrowers get their down payment from the sale of their existing home. If proceeds from the sale are insufficient, borrowers must come up with the difference. The remaining funds can be withdrawn from assets, gifted by family, or procured through the sale of other personal property.
How to Make the Most of the Reverse Mortgage Purchase Program
The reverse mortgage purchase program offers seniors several important benefits. Seniors who are living on a limited income or have a low credit score might be ineligible for a forward mortgage loan. Using these loans to purchase a home allows seniors to move into a new residence without going through a rigid approval process. Most seniors would also prefer not to begin making payments on a new mortgage loan later in life. These loans allow seniors to live in their new home payment free. These loans only become due once borrowers pass away or decide to sell their home.
To make the most of the reverse mortgage purchase program, many seniors choose to downsize to smaller, more suitable properties. If borrowers' reverse mortgage proceeds exceed the price of their new home, they will receive the extra cash. The additional cash can be used to pay the borrower's property taxes, homeowners insurance, and renovate the home. This helps seniors maintain their new loan while taking the greatest advantage of this unique program.