You Can Afford the Best Places to Retire: 5 Important Facts About the Reverse Mortgage for Purchase

Hardly a day goes by without a new list of the best places to retire as well as a story about how making ends meet in retirement is increasingly difficult.  If both of these types of stories are of interest to you, you might want to know more about a reverse mortgage for purchase. Many people are aware of reverse mortgages and how they can help qualifying borrowers who are 62 or older tap into their home equity to remain in their homes. But there’s a special type of reverse mortgage for people who specifically do not want to stay in their homes: the reverse mortgage for purchase. This type of reverse mortgage allows borrowers to take out the loan and purchase a new home all within a single transaction, allowing the borrower to eliminate doubling up on one-time costs associated with getting a mortgage such as closing costs, title fees, appraisal fees, and others. First offered in 2008, it’s often misunderstood. “The first impression is that this product is for people who ‘can’t afford payments,’” says Michael Banner, founder of the American C.E. Institute, LLC. “Make no mistake about this, this is not your grandmother’s reverse mortgage. It was specifically created by Congress for real estate agents and builders to sell homes to people, 62 years old and above, without the obligation of a monthly principal & interest payment.” It’s designed for people who want to downsize or move to be closer to family or friends, while wiping out their mortgage payment for good. It’s still a loan that needs to be repaid like any reverse mortgage, at the time the borrower moves or passes away. But if you plan to stay in your new home for the rest of your life, it’s a worthwhile option to consider. Here are the five things you need to know about the reverse mortgage for purchase. 1. It’s still a loan but there are no monthly mortgage payments. Like all reverse mortgages, there is interest that the borrower repays when the loan becomes due. A Home Equity Conversion Mortgage typically becomes due and payable when the borrower passes away or moves from the home. However, there are no monthly mortgage payments for this kind of loan. 2. Reverse mortgage rules apply. All of the standard reverse mortgage rules set by the Department of Housing and Urban Development still apply to the HECM for Purchase. These include, among others: 3. You can use it to buy a brand new home. As long as the property has received a certificate of occupancy, or some equivalent certification by the local jurisdiction, it should be fair game for a reverse mortgage purchase. Mandatory reverse mortgage counseling with a HUD-approved counselor to be completed before the loan application is submitted.

• Maintaining property tax and homeowners insurance payments as you would with any mortgage loan.
• Upkeep of the property to FHA standards.

Some builders have worked on communities with homes that are designed with retirees in mind with the idea that they can use the HECM for purchase as a way to buy into the new communities. “This product of for clients who want to maintain liquidity yet still have no related monthly debt service on their dream retirement home,” Banner says. 4.  Your Realtor may not be an expert … yet. Many Realtors are expert in the home purchase process, but because the HECM for Purchase is relatively new, some Realtors are more knowledgeable than others. Ask your Realtor whether he or she has worked on reverse mortgage for purchase transactions in the past. 5.  The HECM for purchase can only be used to buy a primary residence. Also under the terms of a HECM loan, the borrower must maintain the home as his or her primary residence. This means maintaining residency for at more than six months out of the year. If the borrower does leave the home for a year or more, the loan also becomes due and payable.