Reverse Purchase Mortgage

For years, seniors over the age of 62 have had the option of taking a reverse mortgage to turn their home equity into a source of monthly income. In 2013 the Federal Housing Administration (FHA) created an option to use reverse mortgage revenue to purchase a new home as well.

Oftentimes, the buyer’s most valuable asset is their real estate holdings, but that isn’t liquid or easily converted to cash. The reverse purchase mortgage lets a homebuyer access the equity they have accumulated in their primary residence and use this money to purchase a new property. These loans are designed to help buyers whose net worth is primarily tied up in the property that they own.

A new program called the Home Equity Conversion Mortgage (HECM) was created to provide seniors a shortcut to buying a new home by using the reverse mortgage model. The HECM allows the borrower withdrawn funds as a fixed monthly amount, a line of credit, or both. The benefit of this loan is that the homebuyer can tap into the equity that have built without selling their home. For seniors looking to purchase a second home closer to their family or in a warmer climate, this type of loan allows for that possibility.

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Who is Eligible for this Type of Financing?

In order to qualify for a reverse purchase mortgage, the homebuyer must:

  • Be 62 years or older
  • Have a large amount of equity in their property, or own it outright
  • Not have any overdue or delinquent Federal debt
  • Use the equity accumulated in their primary residence for this loan

What Type of Dwelling can be Purchased?

These types of dwelling are all eligible for a reverse purchase mortgage:

  • Single-family homes
  • FHA-approved manufactured homes
  • Two to four unit homes, as long as one unit is occupied by the borrower
  • Condominiums that have been approved by the U.S. Department of Housing and Urban Development (HUD)
  • The property must meet all FHA standards

The reverse purchase mortgage or HECM loan can be used to cover between 47% and 52% of a new home purchase, but not all of it. The remaining balance must be paid by cash, the sale of another property, or a financial gift. This will be due before closing on the new property. This loan will also incur standard closing costs, and the home buyer is responsible for paying homeowner’s insurance and property tax.

If you want to learn more about how to take out a reverse mortgage to purchase a new home, call us at 877-948-2562.

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