Understanding the Reverse Mortgage for Purchase Program

What many consumers fail to realize about reverse mortgages is that these loans can be used to purchase a home. Through the reverse mortgage for purchase program, officially known as the HECM for Purchase program, consumers are able to use federally-insured reverse mortgages, or HECMs, to purchase a new residence. The HECM for Purchase program first became available on January 1, 2009. The Federal Housing Administration (FHA) created the program to address an expensive trend rising amongst seniors. Many seniors were selling their homes, downsizing to less expensive properties, and then taking reverse mortgages. Before the reverse mortgage for purchase program, seniors had to do this in two separate transactions, which meant that they were paying closing costs on two different loans. To improve the process, the HECM for purchase program was born. rnHow Does the Reverse Mortgage for Purchase Program Work? As with traditional reverse mortgages, borrowers must be at least 62 years of age to qualify for the HECM for purchase program. With this program, a borrower will be purchasing a home and obtaining a reverse mortgage in one transaction. For this to work, borrowers must provide a down payment. The down payment typically comes from the sale of the borrower’s home but may be withdrawn from a borrower’s savings. After purchasing the home, borrowers have 60 days to move into the property. When purchasing a home with an HECM, one of two scenarios are likely to occur. The price of the new residence will either exceed the proceeds of the HECM or the proceeds will exceed the sales price, which would leave the borrower with additional funds. If the price of the new home is higher than the proceeds of the HECM, the borrower must come up with the difference. If the proceeds of the loan exceed the sales price, the borrower will receive the difference. Borrowers can choose to receive these funds as a lump sum, line of credit, or monthly installments. As with traditional reverse mortgages, these payments are tax-exempt. rnWhy Seniors Are Using Reverse Mortgages to Purchase New Homes For seniors who want to relocate but have also been considering a reverse mortgage, the HECM for purchase program can be hugely beneficial. This program was designed to help seniors afford to move into homes that better meet their needs. It was also designed to simplify the loan process and help seniors avoid paying two sets of closing costs. In some cases, it can be difficult for retired consumers to move. Seniors who have low credit scores or limited incomes might not be able to qualify for a traditional mortgage loan. Fortunately, as long as these consumers have enough equity, they might be able to purchase a new home though the reverse mortgage for purchase program. This program helps seniors purchase a more suitable property, without having to make monthly mortgage payments on a new loan. While reverse mortgages might not be right for everyone, this program is a great way for seniors to relocate and take a reverse mortgage in one smooth transaction.