Is It Possible to Get a Reverse Mortgage to Buy a New House?

In 2009, the government launched the HECM for Purchase programme, which makes reverse mortgages available to seniors for the purchase of a principal house. The government saw that some homeowners were employing a two-step process, which entailed getting a normal mortgage to buy the house and then using reverse mortgage information to pay off the conventional mortgage, which was more expensive and took more time. 

If the borrower were 62 years old, the anticipated rate was 5%, and the principal limit factor was 52.4%, then the HECM for Purchase could cover this amount. To pay the remaining 47.6 percent, additional assets such the money from the sale of the previous primary residence would have to be utilised. 

Extra debt cannot be used to make up the difference. Borrowing only 60% of the principle limit (or 31.4% of the worth of the home) and coming up with the remaining 68.6% of the purchase price in cash or other financing will reduce the need for initial mortgage insurance. The money might be reimbursed a year later, making the 47.6% amount accurate. 

After that, the debt is not payable until the house is sold, and the borrower has full ownership of the property. Monthly savings from not having to make mortgage payments might be applied toward other bills or invested for future growth. 

It is possible that the loan's principal will exceed the home's value if the borrower remains in the home for an extended period of time (more on this later). Inheritors may just hand over the keys at that point and walk on. The Home Equity Conversion Mortgage (HECM) for Purchase programme offers long-term financing for homeowners in exchange for an initial down payment equal to 4.76 percent of the home's value. If the borrower moves out while owing more on the loan than the home is worth, any profit above the loan balance is equity. 

The HECM for Purchase programme can be used for either moving into a smaller home or making major improvements to an existing one. The HECM for Purchase allows homeowners who are downsizing to keep a larger portion of the proceeds from the sale of their present home. 

When a traditional mortgage becomes more difficult to get after retirement, the HECM for Purchase programme can be a great resource for affluent retirees looking to upsize their living situation. Suppose the elderly person is looking to move up from a $600,000 home to a $300,000 one. Assuming a PLF greater than 50%, a $300,000 HECM for Purchase credit and the proceeds from the sale of the previous home would cover the whole purchase price of a new home. 

The borrower may prefer to avoid the 2.5% initial mortgage insurance premium, however this is the standard approach for upgrading without using savings or obtaining a new conventional mortgage.