Can Your Wishes Come True? New Reverse Mortgage Purchase Guidelines Make it Easier to Buy a New Home

Reverse mortgage purchase guidelines were recently eased, making it much easier to use this loan type to buy a newly constructed home. A Home Equity Conversion Mortgage, more commonly known as a reverse mortgage for purchase or an HECM for Purchase (or even H4P) is a specific type of reverse mortgage loan that lets you buy a home using a reverse mortgage (instead of a traditional mortgage).

How Does the HECM for Purchase Program Work?

If you have an adequate down payment, you can buy your dream home, shift to a retirement community, downsize to a more modest residence, live in a tiny home, move to the beach, live in a big city, relocate closer to family or move anywhere at all and… not have to pay monthly mortgage payments. With the HECM for Purchase program, instead of getting the reverse mortgage on your current home, you buy a home using the reverse mortgage. Your qualification and loan amount are calculated using:

• The value of your down payment (the bigger your down payment, the less you need to borrow from the reverse mortgage)
• The appraised value of the property you intend to buy
• Your age

Depending on your age and the price of the home you wish to buy, the HECM for Purchase loan will cover somewhere between 40 and 70% of the purchase price. The fees, interest rates, terms, and conditions of the loan are all identical to those of a normal reverse mortgage, meaning that you never have to make any mortgage payments for so long as you are living in the property. None of the money you borrow with the reverse mortgage has to be paid back until you (or your spouse) are no longer living in the property. However, it is important to note that the home must be maintained and all taxes and insurance must be paid for the duration of the reverse mortgage. The home purchased with the aid of a reverse mortgage must become your primary residence.

Changes to HECM for Purchase Program Make it Easier to Buy a Newly Constructed Home

Last month, the reverse mortgage for purchase program was changed.  It is now easier to buy a newly constructed house with this program. Previously, you had to show a certificate of occupancy for the property when the loan application was submitted.  This was impossible to do for a newly constructed home and it was hugely frustrating and complicated for people to buy new construction using a reverse mortgage. However, the rules have now been changed.  The certificate of occupancy paperwork may now be presented at any time before the loan closes.

What Are the Benefits of a Newly Constructed Home?

Somewhere around 10% of all homes sold are newly constructed properties (rather than previously owned houses). There are many benefits to buying new construction — especially for seniors:

• You can often customize the floor plan and modify the layout to be conducive to aging in place.
• New homes are usually more energy efficient which translates to lower utility bills.
• You can find homes that have state of the art technology as well as environmentally healthy options (which can insure better health for you).
• Maintenance costs are usually much lower on a new home.  This can be particularly appealing to older buyers.
• Many new homes are built in areas offering a wide arrange of great amenities that can help seniors stay active and be part of a community.

The downside is that new construction is sometimes more expensive — though this may be offset by lower maintenance costs.

What Kinds of Homes Can Be Purchased with a Reverse Mortgage?

It is important to note that you are not limited to buying new construction using a reverse mortgage.  You can buy any newly constructed or previously occupied home that is eligible for a reverse mortgage. Homes eligible for a reverse mortgage include:

• Single family homes
• Two- to four-unit homes with one unit occupied by the borrower
• Condominiums that are approved by the U.S. Department of Housing and Urban Development
• FHA approved manufactured homes

Do You Qualify to Buy a Home with a Reverse Mortgage?

It is quick and easy to find out if you qualify for a reverse mortgage for purchase (or any kind of reverse mortgage) and how much money you can get.  Use a reverse mortgage calculator to estimate your loan amount and access additional resources.