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New FHA Reverse
Mortgage for Purchase Program Applies to all seniors age 62+
Highlights
A new Federal
Housing Administration (FHA) program can help senior
homeowners relocate to be closer to family members or move
to homes that better meet their current needs -- without
giving up all their savings and potentially have extra cash
when the purchase is complete. Oftentimes in the past, the
homeowner would purchase a home with a traditional mortgage
and then turn around and take out a reverse mortgage -- thus
incurring closings costs twice. Now this all can be done as
one transaction. But help is now available through a new, but little known, FHA reverse mortgage program, known as the Home Equity Conversion Mortgage, or HECM, for Purchase Program which gives seniors new ways to use equity in their homes. HECM loans have been available for many years. There are two pieces to the purchase transaction:
The borrower is required to make a monetary investment with
his or her own funds and the HECM is to be used for the
remainder of the purchase price. Funds used for the down
payment must be verified. How the program works With the new HECM program, you can use a reverse mortgage to buy a single-family home, a condo or a small multifamily residence, enabling homeowners to convert some of the equity in their existing home to cash. The homeowners will still need to pay property taxes, homeowner’s insurance, condo fees and make any necessary repairs to maintain their home as part of the terms of the reverse mortgage. In exchange, they never have to make a single principal or interest payment until the home is eventually sold. Many people think that homeowners who take a reverse mortgage sign away their home. That’s probably the biggest concern and it’s absolutely untrue. The title and ownership stay with the homeowners. Eligible homes can be one- to four-units, a condo approved by the U.S. Department of Housing and Urban Development, or HUD, or a manufactured home that meets FHA requirements. No income verification is required (unless borrower is retaining current residence as a rental property); no credit score requirements and only minimal credit requirements. Here are some examples of how it can work: Example #1: Mrs. Jones wants to move and not have monthly payments. She sells her home for $500,000 and repays a lien of $100,000. She has $400,000 left and several options:
Example #2: Richard and his wife, both 75 years old, wish to move from their $1.2 million home in Weston and purchase a condo in Westport. They now have an offer on their home but are concerned that it will be costly to do their desired renovations to the $800,000 condo they want to purchase. They decide to use a HECM for Purchase Program reverse mortgage of an estimated $380,000 along with their cash investment of an estimated $420,000 to buy the condo which will free up funds to do the renovation leaving them additional equity from the sale of their home to better enjoy their new lifestyle. How much you can borrow The amount you can borrow depends on your age, current interest rates, and the lesser of the appraised value, the contract sales price or the applicable FHA Lending Limit. For higher-valued homes, there is a new jumbo non-FHA reverse mortgage loan which can also be used for purchase. It does have credit score requirements and is currently intended primarily for single-family residences and PUD’s. When you sell the home, you or your estate will repay the cash you received from the reverse mortgage plus interest and other fees to the lender. Any remaining equity belongs to you or your heirs. A reverse mortgage deserves serious consideration as a way to provide financial flexibility. HECM loans are available only through an FHA-approved lender. Atlantic Residential Mortgage will guide you through the process – working closing with the client, realtor and attorney. A first step would be a discussion with a trusted
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