Using a Reverse Mortgage to Buy Another Home

Table of Content

• When The Loan Has To Be Repaid
• Borrower Obligations
• Today's Reverse Mortgage Purchase Rates
• When using an HECM for Purchase, what is the amount the interest is charged on?
• Markets
• How Do You Buy Back A Reverse Mortgage
• How Will I Receive My Money
• Do My Heirs Have To Pay Off My Reverse Mortgage Loan Out Of Their Own Pockets

After paying seller fees and repaying your HECM, the proceeds from selling your house may not be enough to support your next step, whether it’s downsizing, assisted living, or paying a relative for caregiving. As the homeowner, you will still be responsible for maintaining your property insurance and taxes. This may be different than a traditional mortgage you have had in the past, for which property insurance and taxes are often included in the monthly payment and are remitted by your servicer. However, based on the results of a financial fitness test, you may be required to have a set-aside account containing proceeds from your reverse mortgage that have been set aside for payment of your property insurance and taxes.

I need to meet or talk to someone about purchasing my dad's home that is on Reverse mortgage. This process is very confusing and I just want to make sure I am well informed while making this decision. Firstly, if there is a claim to be paid, HUD must be involved, and the lender may not have had the option to just accept your buyer's offer.

When The Loan Has To Be Repaid

If the starting auction price is over the market value, you would not be the only ones unwilling to buy at that starting price and the lender would be pretty assured of winning the auction. The home may or may not go up for sale and the lender cannot give you any information about the loan. If no one bids higher, the property will go to the lender by Trustee's sale and Trustee's Deed.

Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. An HECM for Purchase enables homebuyers to preserve other retirement savings, allowing that money to stay invested and grow. Gina LaGuardia has more than 25 years of experience in senior editorial roles, and is an expert in personal finance topics, including banking and lending. She has created content for financial powerhouses such as Chase Bank, American Express Canada, First Horizon Bank, BBVA, and SoFi.

Borrower Obligations

When determining the price, consider your mortgage balance and closing costs. A real estate agent, broker, or Realtor can help set the price, handle showings, negotiate with potential buyers, and ensure a smooth closing. If your state requires it , hire a real estate attorney to assist with the process.

Instead of paying all cash or taking out a traditional mortgage, you finance part of the purchase price using a reverse mortgage. With this approach, you have no monthly mortgage principal and interest payments, and you don’t have to repay the loan proceeds and accrued interest until you move out, sell the home, pass away, or fail to uphold the terms of the loan. The reverse mortgage comes due—the loan plus interest must be repaid—when the borrower dies, sells the property, or moves out of the house.

Today's Reverse Mortgage Purchase Rates

Are you asking if he can buy the house from the lender or from mom? If mom still owns the home, she sells him the home the same as she would if she had any other loan. They determine a purchase price, enter escrow and close the transaction. The loan will be due and payable when mom no longer owns the home, so he does have to have his financing in place to pay off the reverse mortgage at the close of the transaction. I am a Realtor who has a client wanting to put an offer on a home listed for $215k with 6% commission (3% to buyers agent). Listing agent informed me that Seller has Reverse Mortgage and a payoff quote of $196k .

You could choose to use a fixed rate, but then you would have to take a full draw of the amount available to you and that would be more than $150,000. However, if you really want a fixed rate mortgage, you could use the fixed rate reverse mortgage and pay back any portion of the funds you did not want at any time without penalty. The main difference between a reverse mortgage for purchase and a regular mortgage is the way the home is bought. With a reverse mortgage for purchase, the borrower can buy the home in one transaction, without having to make monthly mortgage payments. In addition, you will meet with a counselor from an independent, HUD-approved housing counseling agency to ensure you understand what makes a reverse mortgage different.

When using an HECM for Purchase, what is the amount the interest is charged on?

A significant number of borrowers in the past used up all of their home equity at the outset. When they needed money later, they found no remaining equity in their homes and ended up in foreclosure. How much you can actually borrow is based on whats called the initial principal limit. The federal government lowered the initial principal limit in October 2017, making it harder for homeowners, especially younger ones, to qualify for a reverse mortgage. On the upside, the change helps borrowers preserve more of their equity. If your heirs dont purchase the home, the lender will sell it on the open market to recoup the money it has lent you through the reverse mortgage.

Home Equity Conversion Mortgages account for 90% of all reverse mortgages originated in the U.S. As of 2006, the number of HECM mortgages that HUD is authorized to insure under the reverse mortgage law was capped at 275,000. However, through the annual appropriations acts, Congress has temporarily extended HUD's authority to insure HECM's notwithstanding the statutory limits. Money received in a reverse mortgage is an advance and is not taxable income.

You could bid on the home at the foreclosure sale but those are usually cash sales with the first bid being the lender's bid and is for the amount owed to the lender. The lender will not make a second bid and if the amount owed to the lender is well under the value of the home, the bidding is often competitive with others who look for good deals at foreclosure auctions. You can only have one reverse mortgage at a time because it must be on your primary residence. If you sell your primary residence or otherwise move from your primary residence, that loan becomes due and payable and once it is paid in full, you are eligible to receive a new reverse mortgage on the new property . The amount you can borrow through the program will depend on several factors. For example, your lender will consider the age of the youngest borrower (or the non-borrowing spouse), the home’s appraised value, the size of your down payment and current interest rates.

There are many advantages to this approach, including no monthly mortgage payment. You would, of course, still need to pay property taxes and hazard insurance and meet all loan requirements. The most widely used reverse mortgage is the home equity conversion mortgage , a loan insured by the Federal Housing Administration and issued through FHA-approved lenders. HECMs are available to qualified borrowers with homes valued at up to $970,800.

However, borrowers do have the option of paying down their existing mortgage balance to qualify for a HECM reverse mortgage. The amount you can borrow also depends on the way you choose to take your reverse mortgage proceeds. HUD discourages homeowners from taking their proceeds in a single lump sum by limiting the amount you can take out in the first year of the loan term.

Reverse mortgages are used by older Canadians to provide a source of retirement funds, and with more than 60% of Canadians concerned theyâll outlive their retirement savings, itâs no surprise reverse mortgages are a talking point . If a borrower dies, sells their home, or moves out, the loan immediately becomes due. One solution is to list your boarders on the loan paperwork however, no one living with you under the age of 62 may be a borrower on the reverse mortgage. Heirs or the homeowners themselves can pay off the balance due to keep the home after a maturity event.

How Will I Receive My Money

HECMs give you bigger loan advances at a lower total cost than private loans do. Also, a HECM borrower generally can live in a nursing home or other medical facility for up to 12 consecutive months before they have to repay the loan. It guarantees the lender gets their money if you’re not able to repay the reverse mortgage. If you’re considering a reverse mortgage, shop around and ask questions. Choosing which type of reverse mortgage is right for you might depend on what you want to do with the money. A counselor can explain the features of the three types of reverse mortgages available.