Registered Rep, a magazine for professional financial planners and stock brokers, recently highlighted how a reverse mortgage could be used to purchase a new home. Reverse mortgages are receiving more and more coverage in the financial planning community and many planners are learning about the benefits these loans offer their clients.
In “The New Reverse Mortgage Magic,” Registered Rep explained how a senior citizen could buy their new retirement home without adding a monthly mortgage payment to their budget.
Financial planners have long known that reverse mortgages, or Home Equity Conversion Mortgages (HECM), can be used by home owners over the age of 62 to unlock the equity they have in their primary residence. The amount they can access depends on the homeowners’ ages and the value of their home. There are no income or asset requirements to qualify for a reverse mortgage because the loan is repaid after you move out rather than with regular monthly payments.
A relatively new program now makes it possible to use an HECM to buy a new home. Since 2009, the Department of Housing and Urban Development has offered the HECM for Purchase program.
What is the HECM for Purchase Program?
Registered Rep noted that this program is ideal for retirees without enough monthly income to qualify for a traditional mortgage. It could also be useful for retirees with the majority of their assets in tax-sheltered IRAs who want to avoid the large tax bills associated with withdrawing funds to make a cash purchase, or smaller cash withdrawals to make monthly mortgage payments.
HECM for Purchase loans are also useful if you can’t sell your current home but want to purchase a new home while home prices are low in many parts of the country. The magazine also noted that, “it might be a client wise enough to realize that using the reverse mortgage to purchase a home reduces the liquidity risk and exposure to the housing market that accompanies more traditional methods of home buying and financing.”
To buy a home under the HECM for Purchase program, the buyer will need to make a down payment but will never have to make a monthly mortgage payment. If you take advantage of this option you will have to pay taxes and insurance like any other home owner would.
While mortgage rates are low, the interest rates on reverse mortgages are also low and that could help you accumulate wealth in your new home. As the home owner, you will benefit from the appreciation in the value of your home. The price appreciation will offset the interest charges of the reverse mortgage. That makes now the perfect time to see if this program is right for you.
Give one of our Legacy Reverse Mortgage reps a call if you’re interested in learning more about HECM for Purchase Program at (800) 991-4613.