Many potential reverse mortgage for purchase candidates have never heard of the program to begin with. Financial advisers, real estate agents, and even forward mortgage brokers don’t have the knowledge about this financing option. This program is not for cash-poor seniors. Instead many savvy seniors are using this program to allow them to purchase a home while also having 50% of their money liquid (to invest/save/spend). Honestly the program sounds too good to be true but every single day smart seniors are using it to buy their homes.
Typical methods of buying a home for those over the age of 62:
Paying all cash. Using all of your funds from selling your previous home and or business to buy a new home can lead to financial trouble in the later stages of retirement. Longevity needs to be a factor in your mind – what if you live until X years of age (figure 1-3 decades from now). That is a very long time to make a financial plan for, but having cash to invest helps. Using all of your money from the previous sale of an asset to buy a new asset that can increase and or decrease is risky. There are other investment opportunities that have less risk involved such as investing in annuities that can provide lifetime income sources with very little to no risk at all. The strategy would be that the other 50% of the homes value could be invested into an asset that is guaranteed to grow and or provide a certain amount of income for the rest of your life. You will NOT have to make a mortgage payment, and no matter what happens to your homes value the lenders cannot foreclosure on your property (you maintain paying taxes and insurance as usual). The only issue with a HECM for purchase is if heirs are involved and if home values decrease dramatically when it’s time for them to inherit the home but this would be an issue even without a reverse mortgage on the property.
Using a forward mortgage to buy a home:
While not as popular, younger seniors give this consideration since they have the credit scores and smaller down payment needed to qualify (20% down). With longevity in mind, a senior in their 60’s should NOT have to worry about making a mortgage payment for the next 15-30 years. We believe it is important to have a comfortable retirement and by utilizing a HECM for purchase you make a larger commitment to buy the home upfront (larger down payment) BUT less risk of owning a home that can as easily decrease in value since the remainder is the reverse mortgage. If value plummets, you are protected since there won’t be any risk of foreclosures, and you DO NOT have a payment to make. That extra monthly income or leftover money can substantially increase your retirement lifestyle which is often overlooked.
Factors involved in calculating how much you will have to put down are your age and the property sale price (property appraised value).
We know that the mortgage payments will be $0, so that is easy enough.
Interest rates. We take care of this factor by comparing at least 4 of the top 10 lenders that we have a partnership with. By comparing multiple HECM for purchase lenders, we can guarantee that you will get the lowest interest rate on buying through a reverse loan which is crucial. This is the #1 overlooked aspect of getting a reverse loan, and we take it very seriously in finding you the most competitive HECM quotes.
Some examples. A $400,000 home being bought with a traditional mortgage at 50% down payment ($200K down) would result in a principal and interest payment of roughly $950 a month for 30 years. This is almost $12,000 a year in payments or lost retirement income that could have been saved/invested/spent on lifestyle. Over the course of the loan, you will have paid $144,000 in interest alone. This is almost what you put down to buy the house with the mortgage to begin with.
Compared to putting down the same amount of money $200,000, but having the remainder financed through the Home Equity Conversion Program for Purchasing a home. The #1 benefit is not having an obligatory payments. Should you want to make a payment, you can. Should real estate prices increase, all of the new equity belongs to you and or your heirs. It is important to note that you will own the home, live in the home as your primary residence, never have to pay a mortgage payment, but you are responsible for (maintenance, taxes, and insurance).
While the reverse mortgage loan will accrue interest (banks need to make money off the loan), your home value should continue to increase offsetting any interest built up. This is also true with the above example with a forward mortgage as well assuming home prices keep at a 4% a year annual growth. Home prices won’t only go higher so if you are concerned about potentially going into care facility as you age or leaving substantial amounts of equity to your heirs getting a forward mortgage might be the better option if you can afford the payments. With the HECM for buying the interest on the loan will accrue and if the home values does not increase at the same rate you will owe more and more as the years go by.
Getting a reverse mortgage to buy a home in October 2014 is a very smart move since interest rates are incredibly low. There are talks of financial assessment, and that could make it tougher to qualify with income and credit being checked. What other programs will allow you to put down less than 50% of the home’s value and never pay another mortgage payment.
Should you be interested in knowing more or getting a free quote, please fill out the form on this page so we can help with the next steps. Our company has the technology to compare purchase mortgage through the HECM reverse mortgage program. Our partner banks have been doing purchase HECM’s for years now, and we have all of the top lenders as business partners. All questions can be answered and quotes given for free to consumers over the age of 62.