How to Buy Your Dream Home with a Reverse Mortgage


While most seniors use a reverse mortgage to take cash out of their existing homes. Did you know that you can use a reverse mortgage to buy your dream home? While many of the same reverse mortgage qualifications apply. For example, you will need to be over the age of 62, the home in question will need to be your primary residence, you will have to show that you can service your homeowner’s insurance, property taxes, and utilities. If you meet these criteria, then buying that perfect home for your retirement, and not having to pay for it, might be the option for you.

Here is how it works. Congress created what is known as the Home Equity Conversion Mortgage for Purchase. This loan helped to streamline the process for seniors to purchase their own home in retirement. Before this loan package was enacted a senior would either have to pay cash or take out a traditional mortgage first. Once this was done, then they could apply for a reverse mortgage.

The new approach basically rolls everything into one step. This makes is quicker and less expensive for seniors to buy their retirement home while not having to deal with the burden of monthly payments when living on a fixed income.

If this sounds like something you can use to purchase a new home, then you might be right. Just remember that you will still need to meet all the requirement of a reverse mortgage to make the dream a reality.

In fact, more and more people are waking up to the fact that this might be the option for them. Keep in mind that you will still need to make a down payment, but this is no different than any other home option.

One wrinkle is that the down payment option might be a bit more than a traditional loan. For example, if you are planning on buying a $400,000 home, then you will need to pay $159,000 as the down payment.

Another thing to know is that most reverse mortgages used for a home purchase are fixed- rate loans. This means that the rate will remain at today’s low levels, even as interest rates increase. It also means that the interest and principal will accrue over the entire time you live in the home. As such, you will want to make sure you check all the details associated with your loan to know how much you will owe when you finally do sell or move.

That being said, a plus of the Home Equity Conversion Mortgage for Purchase program is that these loans are regulated by the government. What this means for today’s borrowers is that the amount due will never be more than the value of the home. Think of this as insurance against the property market taking a turn for the worse.

What does this mean in the end? For starters, your age matters. If you are 62 and using a reverse mortgage to purchase a home, then your will have to pay a higher down payment than someone in their 80’s considering the same loan. The reason for this is simple, as you will probably live in the home for a much longer time than someone in their 80’s.

Another thing to keep in mind is that while the interest rate is fixed and today’s rates are fairly low, over time you might be giving back some of the equity you have in the home.

There are plusses and minuses to this.

One of the plusses is that you are not making any mortgage payments – as such, you are saving thousands of dollars every year. While the downside is that if the value of the home does not appreciate faster than interest rates, then the bank will own more and more of your home.

While this is something to consider, most people looking at using a reverse mortgage to purchase their dream home know that they are giving up something to get what is a very good deal. In the end, make sure you look at all the details and talk to a counselor before deciding that such a loan is the right fit for you.

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