Reverse Mortgages

Reverse Mortgage for Purchase: How to get Twice The Home

get twice the home using reverse mortgage for purchase

Have you seen any news articles about a product called the “reverse mortgage for purchase?”

If so you may have noticed:

All of the articles talk about using a reverse mortgage to downsize.

What if you wanted to upsize?

DOES THIS RESEMBLE YOUR CURRENT HOME?

127 Rosewood Circle, Jupiter, FL 33458  List Price $235,000

reverse mortgage for house purchase

Have you ever imagined trading up and finally getting that beautiful dream home you’ve always wanted?

What if you could trade your current situation for this one with no money out of pocket?

18910 Gumbo Limbo Court, Jupiter, FL 33458  List Price : $515,000

guidelines for using the reverse mortgage for purchase

I’m going to explain how in a minute but first…

…let me show you why you’re not alone in defying the stereo type of we Baby Boomers downsizing as we move into retirement.

Boomers (once again) don’t follow their parent’s example…

Since the 60’s boomers have been rebelling against the traditions of our more conservative parents. 

From our attitudes on sex, drugs, and rock and roll to our rejection of what getting older is supposed to look like we have always done things differently.  Nothing is more at odds with tradition than how we behave moving into our senior years.

Our parent’s goal was to work 40 hours a week for 30 years at a job they hated to pay off the little house they bought at the beginning of their career.  

Next they’d retire to a Lazy Boy Barcalounger and watch Fox News 12 hours per day (in their free and clear house) until they die.

We Boomers, on the other hand, have a different idea altogether…

46% of Boomers looking for a “nicer” home:

buy a house with a hecm

According to the Demand Institute Housing and Community Survey 37% of Boomers plan to move in their senior years and 46% of them plan to buy a “nicer” home then they have now.

To do so we Boomers are not afraid to take on debt:

use reverse mortgage for homebuying

Read the entire article at:

http://demandinstitute.org/demandwp/wp-content/uploads/2014/12/baby-boomers-and-their-homes.pdf

Boomers have a completely different attitude about the environment that we want to spend our seniors years in – so let’s talk about how we can get twice the home with no out of pocket expense.

How to Buy a Home With a Reverse Mortgage

A reverse mortgage for purchase may help some seniors finance a new place to live.

Most seniors take out a reverse mortgage to help them stay in their existing home as they get older. But Myra Simmons, 67, took advantage of a little-known product: She used a reverse mortgage to finance a new home.

Myra’s 83-year-old husband, Billy, was having trouble using the stairs in their two-story townhome in Fort Myers, Fla. The couple sold their home and used a “reverse mortgage for purchase” to move into a one-story house nearby last summer.”

Source: Rachel L. Sheedy | From Kiplinger’s Retirement Report, January 2013

In another blog I talked about using the HECM Reverse Mortgage to buy a vacation home.  In that scenario you would “refinance your current home while it remained your primary residence and use the proceeds for your second home. 

But what about selling your current home and combining that equity with a reverse mortgage loan to buy your dream house with no additional out of pocket expense?

The Home Equity Conversion Mortgage (HECM) for Purchase was created by Congress in 2008 to streamline home-buying transactions and cut costs associate with a home purchase transaction. Before, seniors would buy a new home usually with a traditional loan, incurring closing costs, and then take out a reverse mortgage after closing the transaction, triggering new closing costs. The HECM for Purchase rolls this into one transaction and one set of closing costs.

How does Reverse Mortgage for Purchase work?

how-to-buy-house-reverse-mortgage

Like any reverse mortgage, the older you are, the more money you can get from the loan.

For instance, a 62-year-old who buys a $400,000 home with a reverse mortgage for purchase must make a down payment of $159,450, according to a recent quote using a standard reverse mortgage calculator.  He can get a loan for $250,000 at a fixed rate of 3.99%, and the proceeds will cover $9,450 in fees and $240,550 of the purchase price.

Now, if homeowner is 82, the down payment drops to $115,450. The loan proceeds, which cover fees and the rest of the home price, rise to $294,000.

To make it easy:

Whatever the home price, count on half coming from your cash and half coming from the reverse mortgage.  So in our example dream home selling for $515,000 you would need $257,000.

Remember, though, if you get the cash from the sale of your existing home to complete the transaction there is no out of pocket money needed

I don’t know about you but the option of trading in the home in example number 1 for the home in example number 2 without any money out of my pocket to me is like winning the lottery.

I mean why wouldn’t you do it?  

OK, what’s the catch? Full disclaimer:

“While you don’t have to make monthly payments, the interest could eventually devour the money you put down. If you live there long enough, the equity could disappear,” says Anthony Webb, a research economist at the Center for Retirement Research at Boston College. “

Having made this disclosure, the chart you will find on my blog labeled why FHA is important will demonstrate why I don’t believe this is a possibility.  As long as the value of your new home grows in line with the growth of the loan your original equity will be maintained.  

“You must still pay insurance, maintenance and taxes on the home—or the lender can foreclose. Keep that in mind if you trade up to a house that has more expensive upkeep than your current home.

This statement is absolutely a valid concern.  Just like in the case of the blog where we talk about using the HECM for a second home, I would recommend setting aside a fund from the proceeds of the loan to cover estimated increased cost to your home management expenses. 

Conclusion:  

As in all my blogs, my goal is not to advise you or convince you to take action one way or the other.

I absolutely loath the self-appointed experts who have the gall to believe they have the right to “tell” you what you should do instead of advising you about the options. 

My goal is simply to make sure that you are made aware of facts that you might not have any knowledge of before this blog and armed with that knowledge you might have a more comfortable life. 

Some will stay in the home they already have and use a reverse mortgage to eliminate a mortgage payment.  Some will use a reverse mortgage to by that second home in a warmer climate to spend their winters and some will use a reverse mortgage to purchase the home they’ve always dreamed of owning.

Whatever your goal, a reverse mortgage is a tool that can sometimes help you achieve it. 

 

reverse mortgage options

 

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