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Retirees Can Use a Reverse Mortgage to Buy a Home

An “HECM for Purchase Loan” allows adults age 62+ to buy with a larger-than-usual down payment, often with transferred equity, and skip future home payments.

WASHINGTON – While most reverse mortgages allows adults age 62 and over to stay in their current home and forego future mortgage payments, one type of loan can be used to purchase property.

Retirees often use an “HECM for Purchase Loan” when they want their next home to be bigger than one they just sold, though it can be used for any size. The rules can be complicated, and anyone considering a reverse mortgage should understand the benefits and their obligations. The Federal Housing Administration (FHA) offers more information on its website.

For the HECM for Purchase Loan, buyers make a substantial down payment, usually somewhere in the 45% to 62% range. Once qualified for a reverse mortgage, they can then live in the new home without making monthly mortgage payments.

“This is incredibly important insight, especially when you consider more and more baby boomers are moving into bigger homes rather than downsizing,” says Rob Cooper, national sales leader at Reverse Mortgage Funding LLC. “There is a lot of room for improvement when it comes to recommending reverse mortgage for purchase financing because most people are not even aware of this option – or have not been well informed about it.”

Older adults considering any type of reverse mortgage should fully understand the benefits and penalties before committing. The FHA-insured program has a non-recourse feature, meaning the home is the only source of repayment, regardless of the loan balance at maturity. It must also be a primary residence and buyers must participate in loan counseling.

HECM loan details vary by transaction. Older adults interested in using an HECM for Purchase Loan should make sure they understand those details and even consider how unexpected events could impact the decision, such as surprise medical issues. Homeowners must also pay non-mortgage home expenses, such as property taxes and property insurance. Failing to do so could potentially lead to foreclosure.

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