HECM for Purchase

 

You can use a HECM for Purchase reverse mortgage to buy a new home if:

Eligibility Calculator

  • The youngest homeowner is 62 or older
  • The purchased home will be occupied within 60 days of closing
  • The purchased home will be the primary residence
  • No mortgage loan other than the HECM will be used to purchase the home
  • The difference between the purchase price of the home and the HECM proceeds will be paid in cash from the sale of an existing home or another source of funds

Example – Selling an existing home

  • A single man, age 62, recently had his home appraised for $250K and still owes $50K; meaning his home equity is now at $200K.
  • He finds a home for $300K he wants to purchase
  • With his age, he is eligible to borrow about $165K on the new property
  • He decides to buy the new property using $200K from the HECM for Purchase and keeps the $65K left over in a reverse mortgage credit line
  • He now owns his new property and does not have to pay any mortgage payments

Example – Paying cash

  • A single woman, age 70, rents a home but has saved $100K to buy a property
  • She finds a home that is $250K so she is short $150K
  • She decides that HECM for Purchase is her best option. At her age she can borrow around $150K on the $250K home
  • Taking the full $150K and her $100K savings, she buys the home
  • She know owns the home and has no mortgage payments

Special restrictions

  • If the cash is a gift, it is not acceptable
  • If the homeowner is using cash, the cash must be seasoned 60 days
  • There must be proof that the homeowner has “eligible funds” for the closing and any of these documents must be provided
  • Letter of Verification of Deposit from the bank
  • Proof of liquidation of retirement assets
  • Deed of Sale
  • HUD1 Home Sale Statement

The property must be a primary residence and can be

  • 1 to 4 units
  • Approved Condominiums
  • Approved Manufactured Homes

Ineligible property types include

  • Cooperatives
  • Homes without a Certificate of Occupancy or equivalent
  • Boarding house
  • Bed and Breakfast establishments
  • Existing manufactured homes built before June 15, 1976
  • Existing manufactured homes built after June 15, 1976 that does not conform to the manufactured home construction safety standards or lack a permanent foundation

If repairs need to be done on the home, major repairs must be taken care of before the transaction can close:

  • Critical health, safety and structural integrity issues must be repaired
  • Repairs must be completed by seller prior to closing
  • The buyer can not pay for any repairs before they own the home
  • The repairs must be included in the purchase agreement

Costs

With a HECM for Purchase the usual costs associated with selling and buying a property apply as well as the normal reverse mortgage fees.

Interest rates

Fixed rate reverse mortgage

The fixed rate programs are defined by each lender and are not indexed to the public. To determine the currently available fixed rate, you must ask a reverse mortgage lender for a good faith estimate.

Adjustable rate reverse mortgage

Adjustable rate reverse mortgage have interest rates that change as the market interest rate index changes. The index most commonly used today is the LIBOR, the London Inter Bank Offered Rate. This is an international rate instead of a US focused index.