Reverse mortgage loans allow eligible homeowners to convert a portion of their home equity into available funds. For homeowners age 62 and older, the federally insured Home Equity Conversion Mortgage (HECM) program also provides the option to purchase a new primary residence using a reverse mortgage.
Through the HECM for Purchase program, you can use proceeds from the sale of your current home—or other available funds—to buy another home with a single down payment. No monthly principal and interest mortgage payments are required as long as you continue to live in the home as your primary residence and meet all loan obligations, including maintaining the property and staying current on property taxes and homeowners insurance.
This program can provide greater financial flexibility by reducing or eliminating required monthly mortgage payments. When the home is sold or no longer used as your primary residence, the loan becomes due and payable. Any remaining equity after the loan balance is repaid belongs to you or your estate.
As with all reverse mortgages, borrowers must meet eligibility requirements and complete HUD-approved counseling prior to closing.
A married couple wants to purchase a home valued at $300,000. The youngest spouse is 67 years old. The current interest rate is 5%.
Purchase price of home - $300,000
Available Loan proceeds after loan and closing fees - $184,000
(Calculation based on age of youngest borrower, interest rates, and home value)
Minimum Down Payment Required - $116,000
Monthly Mortgage Payment - $0
Purchasing a home with a Reverse Mortgage is very similar to purchasing a home with a conventional mortgage, with two minor exceptions. Rather than determining a down payment based solely on the purchase price, the minimum down payment will be based on a factor of your age, interest rates, and the lesser of the home's appraised value, purchase price, or FHA-imposed national lending limit. Once an offer is accepted, your Reverse Mortgage lender will work with the seller or seller's agent to open escrow with a title or escrow agency familiar with reverse mortgages. In some Instances, a conventional title company will be able to conduct reverse mortgage transactions - your Reverse Mortgage lender will be able to determine which title companies can do this for you. Reverse Mortgage appraisals, inspections, contingencies, documents, and closings are virtually the same as those with a conventional mortgage. Because of the HUD-required independent borrower counseling, some Reverse Mortgage escrow periods may be slightly longer than that of a conventional mortgage - although this isn't always the case.
Because the funds available from a Reverse Mortgage loan are dependent on a number of factors, there is no single "rule of thumb" to determine the minimum down payment amount. Your Reverse Mortgage lender uses a computer program to determine how much is available based on:
In general, the older you are and the lower the cost of the home, the less will be required for the down payment. In the interest rate environment the past few years, a 65 year old borrower would typically need a down payment of roughly 60% of the purchase price of the home. This would be the only payment the buyer would ever make towards the purchase - regardless of how long they end up living in the house or what happens to home values.
Your Reverse Mortgage lender can discuss with you additional details about your home purchase options, such as:
