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Reverse Mortgages have been used for home purchase for many years, however, the federally insured version, HECM, has recently become available for financing a home purchase as well. The advantages of the HECM loan are substantial, like low interest rates and FHA insurance but there are the usual drawbacks, like mortgage insurance fees and HUD property regulations.

To use a reverse mortgage for home purchase, you would have to qualify, in the same manner as in a standard reverse mortgage transaction. You must be at least age 62 when the deal closes and currently you must be purchasing a home to live in as your primary residence. Once the purchase price has been established, the loan amount would then be based on your age, the older you are, the more money they are willing to lend to you. Since the figures aren’t any different from the standard reverse mortgage transaction, this means your loan amount will be somewhere around 50-60% of the purchase price. The balance of the transaction must be paid in cash, at closing, from your own funds and they will verify the source of these funds. It makes sense then to imagine the home owner bringing lots of cash to the closing table, probably from another transaction like, perhaps, the sale of an existing home.

I am writing this article to do more than point out the obvious and explain a basic reverse mortgage purchase transaction. I would like you to use some creative thinking when considering a reverse mortgage home purchase. Let’s say the home owner, whose name is Linda, is selling an existing home in California and moving to a new home in, oh I don’t know, how about, Arizona.;) The California home sells for $325,000 and it had a mortgage balance of $175,000 to pay off, so Linda is going to receive $150,000 in cash proceeds from the sale.  Now, Linda had it in mind, all along, that she would move to Arizona and buy a home for cash, with no mortgage, so she could live payment free for life. So, she hires a realtor to find her a nice place that is currently on the market for less than $150,000. Sounds like a nice way to go but I have a better idea.

I call Linda’s realtor and explain that she could qualify for a reverse mortgage home purchase simply because she is over age 62 and she is buying the home to live in as her primary residence. The benefit to both Linda and the realtor is that she now has a couple of new options.

First, she could continue to look for a home in the $150,000 price range and use a reverse mortgage to pay for half of the purchase price ($75,000) and she would be left with and extra $75,000 cash in her bank account that could be used for furniture, golf membership or whatever she wants. She would still live payment free, for life, in her new home but she would probably enjoy it even more with the left over cash in the bank.

Next idea would please the realtor a little more as well. Let’s say she has other assets and doesn’t need to keep any of the cash proceeds from the sale of the California home in her bank account. She can now use all of those proceeds ($150,000) as a down payment on a $300,000 home and a reverse mortgage purchase loan would pay for the other half. Again, she would live in this home, payment free, for life but this new home could be right on the golf course or perhaps it may have a guest casita for visiting friends and relatives. The realtor is thrilled because the commission was double on the more expensive home and there are a lot more, nicer homes to show in the higher price range.

Certainly there must be someone you know who could benefit from this knowledge of reverse mortgage purchase loans. If so, please let them know about my business or have them contact me directly. I would love to get every realtor and their clients familiar with how the reverse mortgage purchase program works.

Michael A. Manfredi is a Reverse Mortgage Specialist

(800) 507-2080

(602) 456-0009