If you’re considering buying a home after retirement, you may have access to more buying power than you think. Thanks to the home equity conversion mortgage (HECM), commonly known as a reverse mortgage, senior homeowners can move into the home they want without incurring extra monthly payments.
What Is a HECM?
Reverse mortgages became available and FHA-insured in the early 1980s. These new loans were developed exclusively for seniors. They were created to give older Americans access to equity in their home. They can then use the equity to defer monthly mortgage payments.
The loans were later expanded in scope to allow seniors to use a reverse mortgage to buy a new home. These loans are known as HECMs with purchase loans.
How Does a HECM Work?
First off, you will need to make a large down payment on the new home. The money for the down payment may come from the sale of your current home, savings, or as a gift from a family member. The down payment cannot, however, be borrowed.
The down payment and value of the new home are then calculated to determine the reverse mortgage loan amount. All of the reverse mortgage funds will then go towards covering the remaining cost for the home, just as a traditional mortgage would. The reverse mortgage will be deferred until the loan matures. However, you will still be responsible for property taxes, insurance, and any HOA dues for your new home.
In addition to having immediate equity available, you will also only have to pay closing costs and fees for one transaction if you use a HECM with purchase to buy a new home.
Should I Use a Reverse Mortgage to Buy My Home?
Home Equity Conversion Mortgages are only available for homebuyers aged 62 and older. HECM’s can only be used to buy a home that will be your primary residence. So, you will not be able to use a reverse mortgage for a second or vacation home.
Home equity conversion mortgages are available for single-family homes, condos, townhouses, 2-4 unit homes (as long as you plan to live in one of the units), manufactured homes that meet HUD guidelines and planned unit developments (PUDs). They require a larger down payment than a traditional mortgage. This is typically between 45 and 62% of the home’s value.
Benefits of Using a Reverse Mortgage
Some benefits of using a reverse mortgage to buy a home may include the following:
- Avoiding dipping into other retirement accounts to buy a new home
- Avoid dipping into any monthly fixed income to pay for your home
- No monthly mortgage payments
- Ability to buy a home that better suits your needs
- No personal liability for heirs, or your estate
As with all home purchases and loans, you should consult with your accountant or financial advisor to determine if using a reverse mortgage fits with your overall financial plans and goals.
Reverse Mortgages for Seniors in Oregon
At Strategic Mortgage Solutions, our team of experienced loan officers can present you with a variety of options available to you for home financing. Whether you need your first home loan, a VA loan, a refinance loan, or a reverse mortgage, our friendly, knowledgeable team is here to help. Send us a message or call 541-275-1148 today to learn more about reverse mortgages and many other home loans available in Oregon.