Purchase a Home With a Reverse Mortgage
Joseph Cina and Phil Goss
The Housing and Economic Recovery Act of 2008 (HERA) provides home buyers, age 62 and above, with the opportunity to purchase a new principal residence with the proceeds from the FHA-insured Home Equity Conversion Mortgage (HECM). The program was designed to allow seniors to purchase a new principal residence and obtain a reverse mortgage within a single transaction by eliminating the need for a second closing. The program was also designed to enable senior homeowners to relocate to other geographical areas to be closer to family members or downsize to homes that better meet their physical needs.
The HECM for Purchase will allow seniors to more easily qualify for a mortgage to consummate the purchase. With underwriting standards tightening, seniors will not have to worry about qualifying using typical forward mortgage criteria. A reverse mortgage has no income, credit or health qualifications. The loan is based upon the age of the youngest buyer, the appraised value of the home or the current HECM lending limit of $417,000, whichever is less, and current interest rates. Upon closing of the loan, at least one senior must reside in the property, pay property taxes and maintain homeowner’s insurance, and reasonably maintain the home. There are no monthly mortgage payments required.
The HECM for purchase can be used on single family residences, owner-occupied 2-4 units, approved condominiums, and manufactured homes built after June 15, 1976 that are permanently attached to the land and is part of the fee interest.
This new purchase loan requires a substantial down payment that must be the buyers own funds, either from the sale of their existing home, or from savings or retirement accounts. There can be no gifts of funds or seller financing or concessions. The buyer must occupy the property within 60 days from the date of closing.
The following scenario is for a 67 and 71 year old couple purchasing a home with a reverse mortgage and using the proceeds from the sale of their existing property as the required cash investment.
Sale of Existing Home
Sales Price $417,000
Less: 7% closing costs $-29,190
Less: Mortgage Pay-off $-63,000
Net Sales Proceeds $324,810
Purchase of New Home
Appraised Value/MCA Sales Price $350,000*
Principal Limit $235,550**
Less: Financed closing costs $15,340
Available HECM Proceeds $214,551
Required Cash Investment $135,449
* Appraised Value/MCA is defined as the maximum claim amount and is used to determine the principal limit which is the lesser of the appraised value or the FHA national mortgage limit. The principal limit is the maximum amount available to the HECM mortgagor.
** Assumes the age of the youngest HECM mortgagor is 67 and a principal limit factor of .665 for a 5% expected average mortgage interest rate.
This senior buyer would have remaining sales proceeds of $189,361 to invest or save for their future and assist them in aging in place as long as they wanted to live in the new home purchased.
Reverse Mortgage Basics:
Reverse Mortgages are available for homeowners 62 and older who want to stay in their existing home or purchase a new principal residence. It allows them to access a portion of the equity and use it for any purpose. Since accessing home equity is not a taxable event, the proceeds for the reverse mortgage are not subject to any income tax. Homeowner’s always retain title to their home. The homeowners are responsible for paying property taxes, keeping homeowner’s insurance in force and maintaining the home. Borrowers can choose how to receive their funds, as a lump sum, monthly income, a credit line, or a combination of these. There are no monthly mortgage payments required as long as one borrower lives in the home. The loan must be repaid when all owners are permanently out of the home.
To inquire about reverse mortgages, please contact:
Joe Cina, Your Reverse Mortgage Professional
Phil Goss, Your Reverse Mortgage Professional
Generation Mortgage is an equal housing lender and is licensed by the Department of Corporations under the California Residential Mortgage Lending Act.
Joseph Cina and Phil Goss, Reverse Mortgage Professionals at Generation Mortgage Company; specialize exclusively in reverse mortgages and have the experience and knowledge that seniors and their family members have grown to respect. With over 16 years of combined reverse mortgage experience and 680+ closed loans, it is evident that Joe and Phil love what they do, enhancing senior homeowners’ lives.
Photo by Thienzieyung
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