Losing a spouse can bring a long list of difficult decisions, and for many older homeowners, one of them is whether it still makes sense to remain in the family home.

Maybe the house is larger than they need. Maybe maintaining it alone has become difficult. Or, as is often the case here in Colorado, children and grandchildren live somewhere else and being closer to family has become a priority.

Selling the current home and buying another might seem like the obvious solution. But what happens when the new home costs more than the old one — or when you want to move before the current home has sold?

For homeowners age 62 and older, a Reverse Mortgage for Purchase (also called an HECM for Purchase) may provide another option.

What Is a Reverse Mortgage for Purchase?

A Reverse Mortgage for Purchase allows an eligible homeowner to use a reverse mortgage to purchase a new primary residence.

Instead of paying the entire purchase price in cash or taking out a traditional mortgage with required monthly principal and interest payments, the buyer contributes a portion of the purchase price from their own funds and the reverse mortgage provides the remainder, subject to the program’s requirements.

The homeowner owns the new home and must continue paying property taxes and homeowners insurance, maintaining the property and meeting the other obligations of the loan.

Moving Closer to Family

Consider a widow who owns her current home but wants to relocate closer to her children.

The home she wants to purchase costs more than the home she’s leaving. Paying cash for the new property might require using a significant amount of savings in addition to the proceeds from selling her current home.

A traditional mortgage could bridge the difference, but that also means adding a required monthly principal and interest payment during retirement.

A Reverse Mortgage for Purchase offers another possibility.

She may be able to combine her available funds with proceeds from a reverse mortgage to purchase the new home without taking on required monthly principal and interest payments.

That could allow her to purchase a home that better fits her needs while preserving more of her other retirement assets.

What If the Current Home Hasn’t Sold Yet?

Timing can also be an issue.

Sometimes the right home becomes available before the homeowner is ready or able to close on the sale of the old one.

Depending on the homeowner’s financial situation and available assets, a Reverse Mortgage for Purchase may make it possible to complete the new purchase before the existing home sells. When the old home eventually sells, those proceeds remain available to the homeowner rather than necessarily being required to pay off a traditional mortgage on the new property.

Whether this approach works depends heavily on the homeowner’s individual finances, so it should be planned carefully before making an offer on a new home.

How Much Does the Homeowner Need to Contribute?

There isn’t one standard down payment for a Reverse Mortgage for Purchase.

The amount a homeowner must bring to closing depends on several factors, including the age of the youngest borrower or eligible non-borrowing spouse, current interest rates and the purchase price or appraised value of the new home.

Generally, the buyer contributes a significant portion of the purchase price and the reverse mortgage covers the remainder.

That’s why it’s helpful to look at actual numbers before beginning a home search. Knowing approximately how much you would need to contribute can help determine a realistic price range.

A Different Way to Think About Downsizing — or Moving Up

Moving after the loss of a spouse isn’t always about finding a cheaper house.

Sometimes the goal is simply finding the right house for the next stage of life. That might mean a smaller home with less maintenance, a single-story property, a different community or even a more expensive home that’s closer to children and grandchildren.

For eligible homeowners, a Reverse Mortgage for Purchase can provide another way to structure that move.

It isn’t the right choice for everyone, and the costs and long-term implications should be compared with paying cash or using a traditional mortgage. But for an older homeowner who wants to relocate without adding a required monthly principal and interest payment, it’s an option worth understanding before deciding how to purchase the next home.

Jan and Kelsey are Reverse Mortgage Specialists 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 Kelsey to learn if a reverse mortgage is right for you.