Once you reach retirement and old age, you might find that your current home is not suitable for your age, and consider buying a new one. Being retired and on a fixed and probably fairly low income can interfere with your plan of buying a new home. Lenders look for good credit scores and incomes when giving out mortgages and most people over 62 simply cannot qualify. Fortunately, reverse mortgages, which have become very popular lately, will allow you not only to tap the equity in your home and receive a nice amount of much needed money, but to also buy a home.
The United States Department of Housing and Urban Development (HUD) started to allow seniors over the age of 62 to use a reverse mortgage for the purchase of a home. The Home Equity Conversion Mortgage (HECM) for Purchase Loan is insured by the Federal Housing Administration and allows people who are 62 or older to use the equity from the sale of a previous home to purchase their next primary residence.
Using a Reverse Mortgage to Make a Home Purchase
Most people who use a HECM for Purchase Loan do it in order to find a home that would be better for someone who is old. The home that you live in might be too large, so cleaning it would be a burden, or hiring someone to do the cleaning may be too expensive. Bigger homes also mean larger utility bills, which can also be a financial burden. If your home is in an area that is too far from where your family and friends live, you might have another reason to move into a new home. Also, because you won’t have to make monthly mortgage payments, you get to enjoy your hard-earned savings without the stress of having to make a large payment each month.
Using a reverse mortgage to purchase a home comes with a few requirements. Here’s what you need to keep in mind before applying for a HECM for Purchase Loan:
- To qualify for a reverse mortgage, the youngest person on the title of the home must be 62 years or older.
- The home that you are purchasing must be your primary residence and must be occupied within 60 days of the loan closing date.
- Your new home purchase must be a single family home or a condo that is approved by the Federal Housing Administration (FHA).
- If the reverse mortgage loan doesn’t cover the price of the new home, the rest must be paid from qualifying sources, such as money from the sale of your previous home, or your savings.
- This type of loan can only be used for a home purchase, and cannot be used for the construction of a new home. However, the HECM for Purchase Loan can be used to buy a newly constructed home, as long as the home is approved for occupancy.
Seniors who wish to take advantage of this type of loan can choose between the standard and the saver version, with either a fixed interest rate or an adjustable one. The saver version of the loan features lower upfront costs, but less money can be borrowed, so most people will choose the standard version of the HECM for Purchase Loan.
Buying a new home after retirement may seem difficult or impossible, but it can be done with the help of a reverse mortgage. However, before taking this step, you must ask yourself why you want to do this and, if the reason is strong enough, make sure that you qualify and can afford to pay the difference between what you borrow and the price of the home from your own pocket.