Reverse mortgages are popular lending options for retired homeowners. In 2008, the U.S. Federal Housing Administration (FHA) responded to the housing market crash by allowing lenders to issue reverse mortgages to individuals purchasing new homes. At First Fidelis LLC, we know qualifying for home loans can be a confusing process, so we are here to explain everything you need to know about reverse mortgages for purchase.
What Is a Reverse Mortgage for Purchase?
A reverse mortgage is a common term in the home mortgage industry. Also known as Home Equity Conversion Mortgages (HECM), reverse mortgages are a way for senior citizens to leverage their home’s equity. This loan preserves the individual’s savings and retirement assets while improving their cash flow. Lenders can give a reverse loan in a lump sum, monthly payments, or credit. Many individuals use reverse mortgages to supplement income or cover bills, including healthcare costs, home repairs or renovations, and utilities.
Reverse mortgages for purchase let seniors purchase new homes using the same model. This home loan structure allows older individuals to bypass monthly mortgage payments by putting down a larger down payment. Instead of applying the reverse mortgage to their current home, buyers can buy a new property using the money from the loan. The mortgage lender will offer an amount as though it was being applied to the individual’s current home.
What Are the Requirements and Conditions for a Reverse Mortgage for Purchase?
Like any home mortgage option, a reverse mortgage for purchase comes with certain requirements and conditions. First, only adults over the age of 62 are eligible for a reverse mortgage. They will also need to cover a down payment of between 45 and 62 percent of the purchase price of the home. The reverse loan will cover the remaining funds.
The most important benefit of a reverse mortgage is the flexible, no interest repayment structure. An individual can repay as much or as little as they want as long as they are meeting loan obligations. Typically, reverse mortgage obligations require the individual to stay up to date on property tax, home insurance, and maintenance. If the homeowner abides by these obligations, they will not need to repay the loan until they sell the home, pass away, or move out for any reason.
Single-family homes, townhouses, and FHA-approved condos are all eligible for an HECM. Additional eligible properties include Planned United Developments (PUDs), HUD-compliant manufactured homes, and two- to four-unit homes that are occupied by the homeowner. Since the Home Equity Conversion Mortgage for purchase is an FHA-insured program, the buyer will never owe more than the home is worth.
If you are considering the reverse mortgage option to purchase a new home, your home lender will calculate the loan amount that you qualify for based on your down payment, the appraised value of the property, and your age. Our mortgage lenders at First Fidelis LLC make the reverse mortgage process easy. For any questions about qualifying for a reverse mortgage for purchase, call us at 913-205-9978.