Tags: Home Inspection, Home Owner, Lender, Questions and Answers
Borrowers over 62 years of age may sell their current residence and use a reverse mortgage to buy a new home in a single transaction thus allowing them to be mortgage free as long as they stay in the new residence. This unique transaction is being done under a Home Equity Conversion Mortgage (HECM) for Purchase, a form of federally insured reverse mortgage authorized in the Housing and Economic Recovery Act of 2008.
The program is specifically designed for persons 62 years or older who want to move into a smaller home. The program allows the seniors to sell their current residence and use a reverse mortgage to buy a new one, all in a single transaction thus eliminating paying closing costs twice.
If the seniors have equity in their old home, they may use proceeds from the sale for a down payment on the new one, and then take out a reverse mortgage for the rest. They would still have to cover the expenses for two closings but, except for a review of financial obligations, they wouldn’t have to meet any income, credit or asset qualifications for the new loan. Better yet, they will have no monthly payments because the loan doesn’t have to be paid back until the home is sold.
The loans are called reverse mortgages because, instead of paying the lender, the lender pays the homeowner. The amount received is based on the age of the youngest borrower, the value and location of the home and current interest rates. The borrower can take the proceeds in a lump sum, as a line of credit to be tapped as needed; in monthly installments; or in any combination of the three.
Interest and mortgage-insurance premiums accrue on the borrowed amount, but no payments are necessary until the home is no longer occupied or owned by the borrower. In other words, a reverse mortgage need not be repaid until the borrower sells, moves out or passes away.
And since these are non recourse loans, the borrower never owes more than the value of the property. The owed balance will be the original amount borrowed plus the accrued interest and insurance. If the house is worth more than that when it is sold, the heirs will receive the difference. And if it is worth less, the lender will forgive the difference and not demand any monies from the estate.
The only eligibility requirements are that the borrower must be at least 62 and the home must be a primary residence and held in their name. Cooperatives, second homes, vacation properties and some manufactured houses are not eligible.
The limit on how much can be borrowed is currently $625,500, which has recently been extended by Congress.
However if the seniors choose to use the Home Equity Conversion Mortgage for Purchase, they don’t have to use all of their borrowing power to buy another place. If the house costs less than they can borrow, they can use the difference for other purposes. Or, like a regular reverse mortgage, they can take the rest as a line of credit to use in whatever manner they choose.