By now just about every human being has heard of a Reverse Mortgage but did you know there is a Reverse Mortgage for buying a home?
Yes, it is called a Reverse Mortgage for Purchase, also called a HECM for Purchase, and these loans are being used by the savviest and informed Senior Home Buyers.
So now thousands of homebuyers age 62 and above are now buying a home with a reverse mortgage.
What the heck is a HECM?
A HECM is a fancy acronym for Home Equity Conversion Mortgage. Much the same as the Traditional HECM, a HECM for Purchase is insured by the Federal Housing Administration (FHA).
Started in 2008, a HECM for Purchase allows senior home buyers the same advantages as the traditional HECM reverse mortgage with the added benefit of being able to purchase a new home.
How a HECM for Purchase Works
A HECM for Purchase is a tremendous financial tool for those seniors that want to free up cash flow, protect their retirement assets and protect against medical needs later in retirement. You never knew a mortgage could do all this, did you? With the HECM for Purchase reverse mortgage, the home buyer provides a down payment with the proceeds of their home sale or savings.
Typically, the required down payment would be 45-50% of the purchase price. By putting only 50% down it allows the senior to reserve more cash for other unforeseen retirement needs throughout their retirement.
This would also allow the seniors to have a choice in making a mortgage payment or not throughout their retirement.
Lastly, buying a home with a reverse mortgage allows the homebuyer to keep a large amount invested for their retirement or to protect their retirement assets down the road when the stock market crashes.
What’s the Benefit of Buying a Home with a Reverse Mortgage?
One benefit to utilizing a reverse mortgage to purchase a home is that it offers the senior the flexibility to make their monthly mortgage payment or they can defer some or all payments until the loan comes due.
Having this cash flow every month can be a major retirement game changer.
Another benefit to utilizing a reverse mortgage for purchase, instead of paying cash would be it allows your money to stay outside of your home for emergencies or any unforeseen retirement need.
Lastly, another major benefit would be the Line of Credit growth. This is probably the most misunderstood part of a Reverse Equity Line. Any unused portion of the Line of Credit grows at rates such as 5 or 5.5%.
This Line of Credit growth makes a good case for paying the mortgage payment early in retirement and utilizing this line of credit growth later in retirement.
One example of a Reverse Mortgage Line of Credit Growth
Let’s say a senior age 62 buys a home in retirement for $400,000 putting down $240,400. This would give the senior homebuyer a starting Line of Credit of around $160,000.
By age 70 that Line of Credit has grown to over $200,000 of available credit. By age 80, that credit line has grown to over $350,000 to use for whatever purpose the retiree needs.
Again nothing on the line, if used, has to be paid back until the homeowner moves out of the property or passes away.
Of course one can wait until age 70 or 80 to take out a reverse but one would lose the whole credit line growth from the prior years and you also fall into the current reverse lending limits and guidelines of the later years should things change with qualifying.
On average, this would result in $100,000 or more, in available credit line reduction throughout retirement. That is not a good thing.
You can see as well the credit line growth has absolutely no correlation to the value of the home. So if your home value declines or the amount available for use on your line increases faster than the value of your home, your credit line can never be closed or reduced!
We would love to review your options for buying a home with a reverse mortgage. Make sure you contact us and we will gladly assist with your Reverse for Purchase options and how it can solidify your retirement. To schedule an appointment immediately call us at 804-282-8820.
