Have you ever known a senior neighbor who’s just enjoying their life in retirement when they suddenly decided to buy a new home? At first, you must’ve thought they saved a lot of money for retirement to do that. But the more probable answer is they probably used a reverse mortgage to buy a new principal residence. That’s all possible due to the power of a home equity conversion mortgage (HECM). If you’re curious about how a reverse mortgage works, here’s what you need to know about it.
Why Buy a New Home as a Senior?
Whether you’re retired or just thinking ahead as you approach your retirement age, having a huge, multiple-level home sounds great and all, but it can be too much if only a few of your family members are living there. Eventually, some of them will decide to move out and have their own families. You may want to consider settling in a smaller house, which is easier to maintain and manage. Some people would like a smaller home that’s cozy and comfortable enough but can also cater to their new physical needs with ramps or handrails. Whatever your reason may be, there is a viable option available to you for aging in a new home instead of your current one.
Find Out If A Reverse Mortgage Is Right For You
Receive a Personalized Analysis Specifically For YouWhat Is HECM for Purchase?
A HECM for Purchase loan allows borrowers to obtain a reverse mortgage and buy a new property within a single transaction. It’s essentially combining the process of home-buying and loan application into a single transaction that’s quite simple to follow. Borrowers who opt to obtain a reverse mortgage are able to buy a house without paying monthly mortgage payments all because of the equity they’ve earned.
However, with a HECM for Purchase, a down payment is required that amounts to about half of the new home’s purchase price. Now the question is, where will you get the funds for the down payment?
Down Payment Funding Sources
In a reverse mortgage for purchase, the borrower provides a down payment using the sale of the previous home or other savings. The equity earned through the down payment and the new home’s value is then used to calculate the reverse mortgage loan amount. This could actually help you save your personal funds that you would otherwise use to purchase a property using a typical mortgage application. Instead, you can use that money for other means. However, there are a few things you need to remember when initiating this kind of transaction:
- You may only use your own money or money obtained from the sale of a previous home.
- Withdrawal from your savings or money gifted to you by someone else is also acceptable.
- You can’t use any borrowed money through bank financing or from a family member.
- Borrowing against an asset like your life insurance policy is also not permissible.
During this process, you may need to meet the loan-to-value ratio requirements with a significant down payment and provide verification of your personal income and funds. Finally, all or part of the reverse mortgage funds then covers the remaining cost of the home, just like with a traditional mortgage.
Your Reverse Mortgage Expert in Dallas
A reverse mortgage for purchase or HECM for purchase transaction is often used by people who want to move into a new home in which they plan to age in place and live in a simpler and more manageable place of residence. If you’re at least 62 years old and you want to apply for this type of mortgage, all you have to do is find a lender you trust and talk to them about having a reverse mortgage.
Michael Harrell of Thinkingreverse LLC is here to help you get the guidance you need to fully understand how a reverse mortgage works. Instead of working it out all on your own, getting personalized advice from a reverse mortgage expert is much easier. If you want to schedule a reverse mortgage consultation, contact Michael Harrell Group today at (214) 269-3593. We work with customers in Dallas and throughout the state of Texas.
Find Out If A Reverse Mortgage Is Right For You
Receive a Personalized Analysis Specifically For You