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What is a Reverse for Purchase Loan?

A Reverse for Purchase Mortgage loan is a reverse mortgage which is used to purchase a new primary residence.  As with a traditional Reverse Mortgage used to refinance an existing home, buyers must be 62 or older to qualify.

While reverse mortgages have been around for more than 50 years, the purchase program is still relatively new.  The HECM (Home Equity Conversion Mortgage) Reverse Mortgage program was authorized by FHA (Federal Housing Administration) and HUD (The US Department of Housing and Urban Development) to finance purchase transactions beginning on January 1, 2009.

What is the purpose of the program?

The HECM Purchase Reverse Mortgage Program was designed to allow buyers 62 or older to purchase a new primary residence using the FHA HECM program with a single closing.  The program gives you increased purchasing power and flexibility allowing you more options when looking to relocate, downsize or to afford improvements to your new home.  In many cases buyers are moving to home better suited to meet physical needs or to be closer to family and friends.

Improved monthly cash flow and cash reserves

Because a reverse mortgage has no required monthly principal and interest payments, your monthly cash flow is significantly improved  over traditional mortgage programs. It also allows you to live free of principal and interest payments without the need to pay all cash up front for your new home preserving cash for future needs.

How does it work?

Just like with a traditional mortgage, your down payment combined with the mortgage will pay the seller or builder for the purchase price of your new home. The exact amount of down payment typically ranges from 25 to 50% and is based on your age and current interest rates.  Generally speaking, the older you are the more you are able to finance and the less cash you will need for closing.

What types of homes are eligible?

• New Construction and Resales
• Single Family Homes (up to four units)
• Town-Homes
• FHA approved condominiums (Contact me directly for assistance in determining if a particular condominium project is approved)

Can a Reverse Mortgage be used for buying new construction from a builder?

Yes, the HECM reverse mortgage can be used for the purchase of a newly constructed home (or one that is not yet built) but there are some restrictions which you and your builder should be aware of before you enter into a contract of sale.

What are the down payment requirements?

The minimum down payment varies depending on the program selected, age of the youngest borrower and current interest rates.  Most buyers need 45-55% of the purchase price of the new home.  Acceptable sources of funds are:

• Net proceeds from the sale of your departure home
• Sale of other asset(s)
• Savings or investments
• Gift funds from family member(s)

Where does the money come from to repay the loan?

When your home is eventually sold, proceeds from the sale will pay off your loan balance. Any remaining equity goes to you or your heirs.

What are the requirements of the home buyer?

• You must occupy the new home within 60 days of closing
• You must maintain the home as your primary residence
• You must pay property taxes, homeowners insurance and association dues (if applicable)

Related Links: Below are a few helpful related links with references to the reverse for purchase program. 

• NCOA Reverse Mortgage Booklet – Use Your Home to Stay at Home, a guide for older homeowners.
• Reverse Mortgage Counseling Agencies – Department of Housing and Urban Development

Please contact Neil Sweren directly at (443) 738-9121 for more information or use the form below.