Reverse Mortgage Purchase - How to purchase a new home with reverse mortgage

It is possible to use a reverse mortgage to purchase a new house and this can be done in three different ways. Before mentioning the three ways, an important feature to note is that age and equity are the only qualifying factors.

Purchase A Home With A Reverse Mortgage

You don’t need to be credit worthy or to have a job. And the best part is that once you take out your reverse mortgage, you remain the full owner of your home. If the value of your house exceeds what is owed at the time of your death, the rest goes to your estate. (Tom Kelly, John Tuccillo, 2004) Let us now observe the three options.

Reverse Mortgage Option: Be Careful How You Choose

Option 1

You can use a mortgage to buy a new house and then use a reverse mortgage to pay off the new home. However, you must make sure that the mortgage you take is small enough to be paid off by the reverse mortgage.

The borrower must aim to avoid paying upfront costs by paying an interest cost so high that the lenders end up paying you a rebate. In addition to making sure that the upfront costs of the loan are minimal enough, the borrower should also ensure that the loan does not carry a prepayment penalty with it.

This option helps to eliminate monthly mortgage payments that would otherwise cause a strain on the buyers. Depending on the amount of money you receive from the Home Equity Conversion Mortgage (HECM), you could very well end up paying off your complete mortgage loan and still have a small amount of money that you could use for other purposes

Option 2

Option two is to pay cash for the new house then reverse mortgage it. This ensures that you avoid all costs associated with a mortgage. The reverse mortgage obtained can then be used to offset any amounts of money in terms of assets that you liquidated during the purchase of the house.

Option 3

Option three involves purchasing the house and taking out a reverse mortgage as a single operation. This type of reverse mortgage is known as the Home Keeper reverse mortgage. The Home Keeper reverse mortgage is targeted for seniors who may want to move from their current homes maybe to be closer to their families or to better climates.

It also targets those who may want higher priced houses that they could not afford originally and do not want to take on new mortgage payments or who don’t want to liquidate their other assets to buy a house because they believe they could get a higher return elsewhere.  The home keeper option becomes very attractive since the buyers need only incur one type of cost; converting equity into a reverse mortgage.

This means that the cost of buying property is avoided. However, the home keeper option does not offer attractive terms as compared to the Home Equity Conversion Mortgage (HECM) and suffers from high fee structures as well as high interest rates. The unique advantage of the Home Keeper mortgage loan to the individual is that once the loan becomes payable, the financial obligation will never exceed the proceeds of the sale of the home.

Home Purchase Reverse Mortgage References

1. Can you reverse mortgage after house purchase?
2. Using Reverse mortgage in buying a house.
3. Edith Lank, (2003) Modern Real Estate Practice in New York. Dearborn Real Estate Education
4. Tom Kelly, John Tuccillo (2004) How a second home can be your best investment: New Tax-Free Methods for Using a Vacation for Recreation, Retirement and Investment. McGraw-Hill Professional