Buy the Home of Your Dreams in Retirement…
You Can Retire in the Home You Want and Need
If you’re like 91% of Americans age 50 to 80, you want—and expect—to spend your retirement years in the comfort of your own home.*
But that may not necessarily be the home in which you currently reside.
Maybe you prefer a house with no stairs, fewer bedrooms or one that’s closer to family or friends. Perhaps you want
to move to a low-maintenance property or relocate to a warmer climate, or a community with better amenities and more social opportunities.
Whether you are already in or nearing retirement, you can buy a new home that will better fit your changing needs without the financial burdens of a traditional mortgage or paying all cash. But how?
Rightsize your home without downsizing your cash flow
You’ve worked hard to preserve and grow your nest egg, and maintain your retirement investment accounts. You may also be living on a fixed income. The last thing you want to do is drain your savings or add another monthly bill to the pile in order to buy a new home.
That’s where a powerful financial tool can help—it’s called a reverse mortgage for purchase. You see, reverse mortgages are not only in the business of helping older homeowners remain in their home while tapping into their equity. They also allow Americans age 62 and older to buy a new house or condominium by combining a one-time investment of their funds (a down payment) with reverse mortgage loan proceeds to complete the purchase.
And the best part? Unlike financing with a traditional mortgage, monthly principal and interest payments are not required on the loan. As long as you comply with the terms of the loan, a reverse mortgage doesn’t have to be repaid until the home is sold, or it’s no longer your primary residence.
As with any mortgage—forward or reverse—you must meet your loan obligations, keeping current with property taxes, insurance, and maintenance of the property.
5 Reverse Mortgage Loan Myths: The Facts
The bank will own my home.
FACT: This is one of the most common misconceptions about reverse mortgages. Just like any mortgage or home equity loan, you continue to own your home with your name on the title. As with any mortgage, you must meet your loan obligations, keeping current with property taxes, insurance, and maintenance.
Reverse mortgage loans are designed to take advantage of retirees.
FACT: Reverse mortgages are specifically designed to help retirees. Many people are living longer—and they’re rightfully concerned about outliving their retirement savings. The ability to access home equity can provide a greater sense of security and more financial flexibility. The industry is also highly regulated: Any lender offering reverse mortgages must follow strict state and federal guidelines and regulations that are in place to protect borrowers.
I will be forced out of my home.
FACT: The reverse mortgage was explicitly created to allow older adults to live in their home for the rest of their lives. You will not be evicted or foreclosed on as long as you meet the obligations of the loan. You must live in the home as your primary residence, and continue to pay required property taxes, homeowners insurance and maintain the home. If any of these obligations are not met, the loan will become due and payable.
I won’t be able to leave my home to my heirs.
FACT: Your heirs will still inherit your home, but they will have to pay back the loan balance if they want to keep the home; this includes the amount of funds you used plus accrued interest and fees. Or, they can sell the home to repay the loan. Once it’s repaid, they receive any remaining equity—just like a traditional mortgage or home equity loan.
A reverse mortgage is a loan of last resort.
FACT: Many savvy homeowners use a reverse mortgage strategically—for example, as a safety net in case of emergencies. Think of it this way: There are different types of loans for different situations and stages of life—student loans, first-time homebuyer loans—and this one is designed specifically for older homeowners and homebuyers, to give them more financial flexibility. In the past, many reverse mortgage borrowers were “house rich and cash poor.” And a reverse mortgage can be helpful to those who are in that situation. But in recent years, a lot has changed. There have been a number of product advances that have made reverse mortgages more attractive,
and academic researchers at respected universities have developed effective strategies for using a reverse mortgage as part of an overall retirement plan. Today, financial advisors are increasingly viewing them as an important option to be considered.
Is a Reverse Mortgage Loan for Purchase Right for You?
Depending on your family, your changing healthcare needs, or your financial obligations, it may seem like buying the home you really want at this point in your life is impractical or out of your reach. Fortunately, the reverse mortgage for purchase option was designed with more than one type of consumer in mind. With this strategic tool, you, too, can retire more freely in the home that better suits your evolving lifestyle.
Create more options and improve your financial flexibility
Maximize Your Cash Flow
A reverse mortgage for purchase allows you to buy a new home without making a monthly mortgage payment.* That means you can keep significantly more cash and assets in reserve for necessities and luxuries in retirement, and improve your monthly cash flow.
Supersize Your Purchasing Power
You can increase your buying power and maximize your cash investment in a new home with a reverse mortgage for purchase. By combining your down payment with reverse mortgage loan proceeds, you can more comfortably afford an upscale home or a property in a more desirable location.
Prioritize Your Life
Purchasing a new home for the next phase of your life doesn’t have to mean downsizing. With a reverse mortgage for purchase, you can rightsize to a home that aligns better with your current and future plans. You can reassess what’s important—whether that is moving closer to family or friends, clearing out the clutter, or buying a home with upgraded features.
Comparing Your Purchase Options
A traditional mortgage limits the amount you have to invest up-front and lets you build equity over the life of the loan. However, the monthly principal and interest payments reduce your cash flow and could be an unwelcome financial burden.
Even if you are comfortable with a monthly mortgage payment now, your financial situation may change as you age. Depending on additional monthly expenses and limited income in the future, you may tire of spending down your retirement accounts to make mortgage payments.
Reverse Mortgage for Purchase
With reverse mortgage financing, monthly principal and interest payments are optional. Of course, as the homeowner, you must meet your obligations to keep current with property taxes, insurance, and maintenance. Interest accrues on the loan balance, so it increases over time, rather than decreasing if you choose not to make monthly principal and interest payments.
With a reverse mortgage for purchase, you build less equity—but unlike a traditional mortgage, as the borrower, you’re never at risk of owing more than the home is worth at the time of repayment. And the flexible repayment feature gives you greater financial control.
Home Equity Conversion Mortgage (HECM) for Purchase
The HECM for Purchase combines two transactions—buying a new home and financing part of the purchase with a reverse mortgage loan. Typically, a down payment of 45% to 62% (depending on your age)† of the purchase price is combined with HECM for Purchase funds to complete the transaction.
What are the program requirements?
- You must be age 62 or older
- The home you’re purchasing must be your new primary residence
- Eligible properties include: single-family homes, FHA-approved condominiums, townhouses or Planned Unit Developments (PUDs), and manufactured homes meeting HUD guidelines
- Your down payment cannot be borrowed funds — it must come from savings, the sale of your current house,or a gift from a family member
- You must participate in mandatory loan counseling by an independent, FHA-approved counselor to ensure that you understand the reverse mortgage process, the specific program’s details, and the individual terms of your loan
- You will need to prove adequate sources of income to assure the lender that you’ll be able to meet your ongoing loan obligations
The HECM for Purchase at Work
For example: Meet Cynthia, age 71.
Due to a recent illness, Cynthia now needs to use a wheelchair, making her current two-story house unsuitable for the foreseeable future. She would like to purchase a new, ranch-style home, but with her limited savings and long-term healthcare needs, she cannot afford a monthly mortgage payment.
Her Solution: With the HECM for Purchase, Cynthia can buy a more practical house while only using a portion of the cash she received from the sale of her former home. She can add more funds to her savings and be better prepared for her future healthcare needs.
For example: Meet Joan and Patrick, age 66.
Over the last 30 years, the value of Joan and Patrick’s family home has skyrocketed due to its location. They would like to seize the opportunity to sell their $750,000 house and purchase a high-end condominium closer to their children and grandchildren.
But with little in savings, they don’t want to use all of the cash from their current home to finance the new property or add another monthly expense.
Their Solution: With the HECM for Purchase, Joan and Patrick can buy an FHA-approved* condominium in an upscale community with less cash up-front. It also allows them to significantly increase their nest egg by adding the rest of the proceeds from the sale of their departure home to their savings. Plus, with no required monthly mortgage payment, they can increase their liquidity.
Is a Reverse Mortgage Loan for Purchase Too Good to Be True?
No. The fact is most people simply don’t know that you can purchase a new home with a reverse mortgage. It’s natural for you and your family to be skeptical about a product with which you are unfamiliar. That is why it is important to bring your loved ones and trusted financial advisors into the conversation and learn the truth about this strategic home financing tool.
The bottom line: The reverse mortgage for purchase program was designed to help older Americans buy a more suitable home in retirement, while still conserving cash and assets for their future expenses.
For example: Meet Carole and David, age 64.
Since their children left home after college, Carole and David have been considering moving from their large, four-bedroom house to a more manageable home in a planned community. But they don’t want to add the burden of a monthly mortgage payment or to pay all cash up-front.
Instead, they use just a portion of the cash from their former house—which sold for $625,000—and borrow additional funds from a reverse mortgage for purchase to buy their new $450,000 home.
By utilizing the HECM for Purchase product, they can preserve more than $360,000 for savings and investments, eliminate monthly mortgage payments,* and still have the flexibility to buy the home they really want.
Take the Next Steps Toward Your Dream Home
STEP 1: Preparation
- Education. Your loan specialist will have all the information you’ll need to help you decide if a reverse mortgage for purchase is the right solution for you. He or she will go over all the details and answer all your questions.
STEP 2: Pre-Approval
- Counseling. You’ll meet with a third-party reverse mortgage counselor who’s approved by the U.S. Department of Housing and Urban Development (HUD), to make sure you understand all aspects of the loan.
- Application. If you’ve decided to move forward, next, you’ll complete and submit your application. The application includes some personal information, and a financial assessment will be conducted to make sure you’ll be able to afford ongoing expenses like property taxes, insurance, and home maintenance. Your loan specialist will guide you through this process and let you know what documents you’ll need.
STEP 3: Processing
- Appraisal. The home you wish to purchase will be appraised by an independent appraiser to determine the value.
- Underwriting. Then the appraisal and loan package will be sent to an underwriter for review and approval. The underwriter will make sure all the information in the package is correct and compliant with all laws and regulations.
STEP 4: Approval
- Closing. After your loan application is approved, you will sign your closing documents with a title officer or attorney (depending on your state’s requirements).
STEP 5: Arrival!
- Relocation. Receive the keys to your new home, and enjoy greater financial flexibility in retirement!