Did You Know You Can Buy a Home with a Reverse Mortgage?
Reverse mortgages have become one of the primary drivers of 55+ communities over the last several years. In fact, Epcon Communities (one of the largest developers of 55 and over neighborhoods), stated after introducing their FHA Home Equity Conversion Mortgage for Purchase (H4P) in 2013[1], “Now, 30% of our homebuyers utilize this buying option. After the closing, they only pay taxes, [insurance and] HOA fees…”
That’s right, with an H4P you no longer are burdened by a required monthly mortgage payment. Nor, are you prohibited to make payments at your convenience. It’s your home, and your mortgage… the loan just gives you the option to help make ends meet in those months when cash flow is tight.
The reverse mortgage for purchase (more accurately described as the Retirement Mortgage?) home financing option can make it easier and more affordable for homebuyers age 62 and older to buy a home that better fits their life. Essentially, it allows borrowers to obtain a federally insured and regulated mortgage and buy a new home all within a single transaction.
Here are the top 5 reasons you may want to explore this option:
1. You’re selling your old home, and are considering an all-cash purchase…
If you simply don’t want payments, 100% equity in non-liquid assets such as a home is not the only option and, many times, not even the best option. Consider putting a portion of that money in your new home and retaining the balance as part of your long-term financial plan, for traveling, for updating your otherwise perfect home for aging in place, or whatever you may need. No payments needed, nor prohibited!
2. Maximize your retirement planning options…
For added flexibility, your retirement plan can be bolstered by creating a line of credit when you purchase your home with an H4P… especially if your plan was to pay all cash anyway. Why not overfund the loan (pay all cash and fund the line of credit at the same time) and maximize your options? For those looking to downsize, free up assets from the sale of the previous home and use those funds to create your line of credit.
More importantly? The available balance on the line of credit is guaranteed to grow at the same interest rate as is being charged on the loan balance outstanding. It’s is an automatic increase in availability and remains true even if your home value drops. And the line, as long as you are not in default on the loan, cannot be frozen or called… unlike a HELOC or a second mortgage.
3. Increase your purchasing power…
To buy a home with an H4P is to give homebuyers more purchasing power if they don’t want to drain all their cash in pursuit of their next home. It gives them the luxury to get a nicer home and add all the upgrades wanted and still have no mortgage payment.
Why “settle” for a retirement home that doesn’t match your dreams? You can use an H4P to afford a bigger, newer home with better amenities, in nicer neighborhoods within walking distance to shops and restaurants, or even the 55+ golf community you’ve always wanted.
And, still have no monthly mortgage payment when desired!
4. You want maximum flexibility and safety for you and your heirs…
Unlike a regular mortgage or home equity line of credit, there are no personal guarantees and the loan cannot be called by the lender unless you are no longer the primary resident, default by ignoring home maintenance or not staying current on taxes, insurance or other homeowner fees just like a “normal” mortgage.
You no longer risk losing the home because the next economic downturn has caused the value of your home to decline below a typical bank’s appetite for risk. The FHA mortgage insurance guarantees it.
And now, to something more important than purchasing a house with a Retirement Mortgage…
5. Create peace of mind by helping ensure your taxes and insurance are paid…
An H4P has a voluntary feature called a Life Expectancy Set-Aside (LESA) which will automatically pay taxes and insurance for you for the rest of your actuarial life.
These costs are paid by the lender (or servicer) by drawing from funds it set aside for you at the beginning of the loan term. While these funds work like an escrow account, they actually are simply a set aside of the funds available to you… only drawn when due.
A line of credit allowing seniors to forgo monthly mortgage payments and draw against their equity to help ensure their taxes and insurance are paid is a tremendous benefit, allowing true peace of mind for borrowers and their heirs.
Concerned about what happens at the end of the mortgage? It’s still your (or your heirs) home! At termination, there are three options:
- You and/or your heirs (should they want to keep the home) will simply owe the lesser of the loan balance or 95% of the appraised value.
- Decide to sell? There are 6 months to repay the mortgage with, in most cases, two 3-month extensions available by showing the home is actively marketed.
- Or, with no personal guarantees, you or your heirs can simply hand the keys to the lender and walk away with no further obligations or impact on your, or your heirs, credit.
Finally, FHA and HUD have cleaned up the reverse mortgage industry with far more protections, independent counseling and other items designed to insure your loan and your home remains in your hands. The home belongs to you. The lender simply has a lien like any mortgage.
These 5 great reasons are just the beginning of the benefits of an FHA insured, HUD regulated HECM. As usual, you should always consult your financial professional or a reverse mortgage specialist to determine how it may be the perfect loan for purchasing your perfect home.
Next step?
Simply reach out to us at Ridge Reverse and let’s discuss how we can help you with a product designed specifically to meet your needs for a lifetime of happiness… while enhancing long term cashflow and quality of life. Feel free to call, text (863-456-7810), or email richard.mcwhorter@amerifund.com and find out more.
Ridge Reverse, powered by Amerifund, provides an Equal Housing Opportunity. Information is subject to change without notice. This is not an offer for extension of credit or a commitment to secure a loan. Some restrictions may apply. This material is not from HUD or FHA and has not been approved by HUD or any government agency.Richard W. McWhorter, NMLS 1618644, is an independent reverse mortgage specialist and can assist in your reverse mortgage needs in most states. Follow him on LinkedIn, the Ridge Reverse website or contact him directly at richard.mcwhorter@amerifund.com.
