We’re all familiar with the two most common options to purchase a home – take out a mortgage loan or pay cash. But for seniors 62 and over, there’s another option – the Reverse Mortgage for Purchase program (aka HECM for Purchase).
Looking for a home in Fort Collins, Loveland or Longmont, Colorado but finding it’s a bit out of your price range? Because the borrower is responsible for only the down payment on the home and will have NO mortgage payments, a Reverse Mortgage for Purchase can help with this too.
What is needed to qualify for a Reverse Mortgage for Purchase loan?
- you must be age 62 or older (each borrower on title must meet this criteria, although others residing in home do not)
- the home you are purchasing must be your new primary residence
- must meet the FHA’s new reverse mortgage credit and income guidelines
- you must have your “required investment” (down payment) from a HUD allowable source. The funds cannot be borrowed. The required investment can come from the sale of a currently owned home or asset, a gift or inheritance, or money you have had for at least 90 days.
Who owns the home that I am purchasing?
As the borrower and homeowner, you will always retain the title to the home, just like any other type of home loan.
What will my personal ongoing obligations be after purchasing a home?
It’s very similar to if you owned your home free and clear – you will NOT have a monthly mortgage payment. But as the homeowner, you will be responsible for paying property taxes, home owner’s insurance, HOA fees when applicable, and basic upkeep including home maintenance and utility payments.
When will the loan become due and payable?
With a Reverse Mortgage for Purchase the loan does not reach “maturity” until:
- the last remaining borrower passes away
- the homeowner sells the home
- the last remaining borrower leaves the home for 12 consecutive months due to illness
- the homeowner defaults on property taxes or insurance
Will I need to sell my current home residence to qualify?
Simply put, no. As long as the loan on your current residence is not an FHA loan and your required investment comes from a HUD allowable source, you can keep your current residence – but the new home will need to be your primary residence. Your lender will ensure you are financially stable enough to support the ongoing obligations on all properties you own. If you decide to keep your current residence as an investment, rental, or vacation property – or you are awaiting the sale of home, it is rarely a problem.
What types of properties can I purchase?
Single family homes, town homes, and FHA approved condos are all eligible properties. The home being purchased will need to be the buyer’s primary residence.
Can I use the loan to build a new home?
Previously these loans could not be used as construction loans and homes needed a Certificate of Occupancy before the loan application could be started. This changed in 2017, and now homes in construction are eligible. Read here to learn specifically about obtaining a Reverse Mortgage for Purchase on new construction.
How is the “Required Investment” amount determined?
The “required investment” or down payment is determined by a calculation set by HUD based on:
- The lesser of the sale price or appraised value
- The age of the youngest of the borrowers
- The current expected interest rate
What may disqualify me from a Reverse Mortgage for Purchase loan?
- Foreclosures within the past 3 years.
- Unresolved bankruptcy
- Unpaid Federal obligations – i.e. federal taxes, defaults on prior government backed loans (such as student loans or government backed mortgages)
- Income too low to support multiple properties
- Unpaid judgments or tax liens
What is the HUD required “Reverse Mortgage Counseling”?
Prior to being approved for a reverse mortgage, HUD’s Federal Housing Administration (FHA) requires each borrow to participate in a counseling session with an approved agency. These third party, not-for-profit agencies are funded by the federal government and work closely with both the FHA and lenders to ensure a smooth process. The goal of this session is not to steer a potential borrower in one direction or another, but to make sure they clearly understand all aspects of a reverse mortgage.
Jan Jordan is a Reverse Mortgage Specialist serving the Erie, Dacono, Fort Collins, Loveland, Greeley, Longmont, Boulder and other Front Range areas of Colorado, as well as the Cheyenne and Laramie communities of Wyoming. Contact Jan and learn if reverse mortgage is right for you.