Can You Buy a Home with a Reverse Mortgage?
Why is there so much talk about buying a home with a reverse mortgage?
In this article we’ll dive deep into the HECM for Purchase program. We’ll go over the pros and cons, and at the end you can decide for yourself if this program is right for you and your family.
REVERSE MORTGAGE PURCHASE BASICS
First, let’s explore how a Reverse Mortgage Purchase works(by the way HECM is another way of saying Reverse Mortgage). Together, we’ll take a look at 2 of my all time favorite clients; Frank and Barb B. Frank and Barb were 69 and 67, and were moving from New Jersey to Pennsylvania to lower their property taxes(New Jersey property taxes are outrageous).
The B’s found a wonderful home in a 55+ Community called The Vineyards. Besides the beautiful house, the clubhouse is an absolute hub for social activity, and Frank loved the idea of not having to deal with tedious outdoor chores.
Barb and Frank had planned well for retirement; they were cash buyers. But their CPA was nervous about them putting down $300,000 for a home. Much of Frank’s money was Qualified, and thus to pay all cash for their home would not only reduce the money in their retirement accounts, but it would also come with a HEFTY TAX BILL.
If that wasn’t enough, Frank hated the idea of a mortgage payment. After all, they were on fixed income, and supporting a mortgage payment(along with their other expenses) would make them draw down on their qualified accounts.
Frank and Barb were at a crossroads, and didn’t know what to do.
HOW THE REVERSE MORTGAGE PURCHASE WORKED FOR FRANK AND BARB
Fortunately, Frank’s realtor Amy Kushy was familiar with the reverse mortgage purchase. She recommended a reverse, and here’s what we came up with after running the numbers. Frank and Barb purchased the home for $295,000. Because of the HECM for Purchase, they only invested $161,000 into their new home. The loan covered the rest.
Of course Frank and Barb have no mortgage payments(besides paying their property charges), and they kept just about $150,000 back in their qualified investment accounts(and thus avoided heavy taxes). In closing, Frank and Barb intend to live in their home for the rest of their lives, and they’re ecstatic to have saved so much money!
We have more information about buying a home with a reverse mortgage below, but if you’d like to learn if a HECM for Purchase can work for you, feel free to call us toll free at (888) 309 9705 or click below for a detailed proposal.
A DEEP DIVE INTO BUYING A HOME WITH A REVERSE MORTGAGE
Now that we’re familiar with Frank and Barb’s success, let’s go a bit deeper into the HECM for Purchase. At a 10,000 foot level, the Reverse Mortgage Purchase works really well for folks who are looking to stay independent, and not go into a “senior home”. For the most part, there are 4 main reasons why a senior would want to move while in retirement.
✅ Downsize to a More Manageable Home
✅ Move Closer to Family
✅ The Ease of a 55+ Community
✅ Save On Expenses
Moving forward, let’s take a quick look into each motivation, and see if buying a home with a reverse mortgage makes sense for you.
Another positive review of the HECM for Purchase
DOWNSIZE TO A MORE MANAGEABLE HOME
One of the most common reasons seniors use the HECM for Purchase is to downsize. Let’s talk about Bob and Zandy. They did well in life, and lived in a 2 story home in Baltimore County. Over the past few years Bob started having trouble getting up and down his stairs, and a recent trip to his doctor confirmed the bad news. Unfortunately, his mobility is just going to worsen, and eventually he won’t be able to get up the stairs at all.
Zandy and Bob needed to downsize, and the clock was ticking.
Because they are both on fixed income, getting a traditional mortgage was out of the question. Furthermore, they didn’t have enough assets to comfortably buy their home in cash. When we went over the Reverse Mortgage Purchase program, Bob and Z were intrigued. They found a rancher that they fell in love with, and when they bought it for $222,000 they only put $126,000 down. Just like Frank and Bob’s situation, the reverse mortgage covered the rest of the balance.
Bob and Z are now in a wonderful home that they’ll be able to live in for the rest of their lives. Buying a home with a reverse mortgage really worked out for them.
MOVE CLOSER TO FAMILY
Enis lives in Bucks County, PA and wants to move closer to his daughter and her 3 kiddos. Enis(well, his friends call him Bub) is single, and not too picky about the house he moves to, as long as it’s within 15 or so minutes of his grand babies. Understanding the situation, Bub’s realtor is keeping his eyes open for homes that are close to the family, and we’re ready with a pre-approval when he finds the right one.
Bub did well in his working years and built up some pretty solid retirement assets, but he’s healthy and in his mid 60’s. Because of this, he needs to keep every dollar he can in his piggy bank. But being on fixed income, Bub really doesn’t want a mortgage. Thus the Reverse Mortgage Purchase.
When Bub finds a home near his family, he’ll pay approximately 56% of the purchase price up front, and the HECM for Purchase will pay for the remainder. Most important of all, he’s already planned a surprise vacation for his family when he seals the deal!
THE EASE OF A 55+ COMMUNITY
Buying a home with a reverse mortgage can be fun, especially when you’re moving to a 55+ Community! Besides less maintenance to take care of, most 55+ Communities have a clubhouse, pool and social activities. Bob and Leslie didn’t need to downsize, but they were getting tired of the endless “honey do list.” They have loads of friends, and were intrigued by the beautiful Buena Vida Resort Community in Palm Beach County, FL. It checked every box on their list, especially the resort style pool!
Being in their mid 70’s, Bob and Leslie invested a little less than 50% of the $509,000 price($251,000 to be exact). The HECM for Purchase was perfect for them, and they are spending a small portion of their savings on joining the local Freedom Boat Club!
KEEP YOUR MONEY IN YOUR PIGGY BANK
Objectively, one of the biggest reasons for buying a home with a reverse mortgage is saving your money! Let’s run by the obvious stuff first; when you buy a home for 60 cents on the dollar, you keep more money in your retirement savings. And when you don’t make a monthly mortgage payment, you cash flow better on a monthly basis(see, I told you this would be obvious😁).
Here’s why this is important. Like 89% of the seniors I help, you probably have a finite amount of money in your retirement accounts. And you need to protect that money…especially if it’s in the market. Even if the market is on an upswing, there is still the chance of 2008 occurring. In fact, historically, 2008 will happen at some time again(we recently experienced this with the Coronavirus scare). The bottom line is, you need to have as much money as possible in savings, so if you do experience a market downturn, your savings isn’t wiped out.
Now, let’s talk about Kevin and Jane. They just relocated from Montgomery County, PA to a 55+ Community right outside of West Palm Beach, FL. Kevin is an estate attorney; he makes a good amount of money. And they are well capitalized; they have quite a bit of money in their retirement piggy bank. But a good portion of that money is QUALIFIED(401k’s are often qualified money). This means that Kevin pays taxes on any money he withdraws. And 100% of the money he’s spending on buying his new home is QUALIFIED.
Kevin’s biggest “why” for choosing the HECM for Purchase was to save tax money(which ended up being about $65,000).
Circling back, I just brought up taxes for a good reason. If you’re using QUALIFIED(ie taxed) money to buy a home, you’re going to get a tax hit. And it isn’t gonna be pretty. So, if you’re like Kevin, oftentimes a Reverse Mortgage Purchase is the best way to go.
Next, we’ll go over more specifics of the HECM for Purchase. In the meantime, if you’d like to learn more about how buying a home with a reverse mortgage can work for you, feel free to contact us below.
CALL US TOLL FREE AT (888) 309 9705 OR
HECM FOR PURCHASE SPECIFICS
If you’ve made it this far you want to know the mechanics of the Reverse Mortgage Purchase. This section will be short and sweet, but you’ll understand how the loan works and your responsibilities.
✅ When buying a home with a reverse mortgage, one spouse must be 62 or older(there is currently one investor who helps folks 60+, but the vast majority require an age of 62+).
✅ The home must be your PRIMARY RESIDENCE, or you must occupy it as your primary within 60 days. On the other hand, you can own multiple properties.
✅ Your initial investment is sizeable. Depending on age, you’ll need to invest between 45% and 65% of your home’s purchase price, and that money can’t be borrowed.
✅ In a HECM for Purchase, your income needs to be enough to afford your senior living expenses. Those include all property charges, utility bills, creditors on your credit report, and about $600 of discretionary income for each resident. Nevertheless, there is no strict DTI requirement with a HECM for Purchase.
✅ Exact credit score DOES NOT MATTER with a Reverse Mortgage Purchase. We do take a look at credit “characteristics”. This means we’ll see if you have any lates on your credit report, and if so, we’ll need to explain them. I’ve personally helped folks with credit in both the 500’s AND the 800’s.
✅ Costs are very similar to traditional reverse mortgages. To see a breakdown of traditional reverse mortgage costs CLICK HERE.
WHO SHOULD CONSIDER A HECM FOR PURCHASE?
✅ First, a Reverse Mortgage Purchase is for folks who are BUYING a home. It does not make sense for seniors aiming to move in with family or move to a nursing home. If you need funds to stay in your present home(and you want to live there) you should consider a traditional Reverse Mortgage.
✅ You DO NEED a significant down payment. Of course, make sure you have the assets available(from savings/investments or the sale of your current home).
✅ Folks who want to LEVERAGE their money(ie. a $300,000 investment will buy you a $500,000 to $700,000 home)
✅ Seniors who don’t want a mortgage payment
✅ Finally, if you want to keep a significant amount(of up 65% of the purchase price) of money in your retirement assets, this program will work well for you.
HOW DOES THE PROCESS WORK?
- First, we speak to go over your eligibility AND ensure that a Reverse Mortgage Purchase is right for you.
- Next, you speak with a Reverse Mortgage Counselor(this is mandatory for everyone who buys a home using a Reverse Mortgage)
- Once you’ve made an offer and it’s been accepted, you’ll complete an application and provide us documentation for underwriting.
- After the contract is in, and the counseling AND application are complete, we’ll order an appraisal.
- We’ll underwrite your HECM for Purchase, and you’ll close on settlement day!!
- The total process takes about 45 days, although in some circumstances we can rush if need be.
WHAT TO DO NEXT
We’ve helped over 400 seniors learn about and get Reverse Mortgages, and we’d love to do the same for you. If you’d like more information on how a Reverse Mortgage Purchase would work specifically for you or a loved one, feel free to reach out below.