Have you ever been contemplating a reverse mortgage however wish to relocate to a brand new metropolis or downsize your own home? Most individuals consider a reverse mortgage as an choice to retire in place, however shopping for a house with a reverse mortgage can also be attainable.
This distinctive monetary device means that you can buy a brand new property utilizing the fairness in your present dwelling with out the stress of month-to-month mortgage funds.
On this information, we’ll clarify how one can make your subsequent transfer simpler and extra financially manageable with a House Fairness Conversion Mortgage (HECM) for Buy. We’ll additionally share a contemporary “buy before you sell” various that means that you can transfer solely as soon as.
Editor’s be aware: This publish is for instructional functions and isn’t supposed to be construed as monetary or tax recommendation. HomeLight encourages you to achieve out to an advisor.
What’s a reverse mortgage?
A reverse mortgage is a mortgage sometimes out there to householders aged 62 and older that permits them to transform a part of the fairness of their dwelling into money. Not like a conventional mortgage the place you make month-to-month funds to the lender, with a reverse mortgage, the lender pays you. The mortgage is repaid when the house owner sells the home, strikes out completely, or passes away. Reverse mortgages are designed to assist retirees with restricted revenue use the amassed wealth of their houses to cowl primary dwelling bills and healthcare prices.
How does a reverse mortgage work?
With a reverse mortgage, the house owner continues to personal and stay within the dwelling whereas receiving funds based mostly on the house’s fairness. The quantity you possibly can borrow will depend on a number of components, together with your age, the house’s worth, and present rates of interest. The mortgage steadiness will increase over time as curiosity and costs are added, however you don’t need to repay it till you now not stay within the dwelling.
Reverse mortgages are non-recourse loans, that means that you’ll by no means owe greater than the house is value. If, for any motive, the house sells for lower than what’s owed on the mortgage, FHA insurance coverage covers the hole. In such a case, neither the borrower nor their heirs can be liable for the distinction or face any damaging credit score influence.
How does shopping for a house with a reverse mortgage work?
Shopping for a house with a reverse mortgage, often known as a House Fairness Conversion Mortgage (HECM) for Buy, permits seniors to purchase a brand new main residence with out the burden of month-to-month mortgage funds. You utilize the proceeds from the reverse mortgage to cowl a part of the acquisition value, and also you contribute the remaining funds from your individual sources, corresponding to financial savings or the sale of your earlier dwelling.
Typically, the older you’re, the extra mortgage proceeds you’re eligible to obtain once you apply for an HECM for buy.
As with a retire-in-place reverse mortgage, you continue to personal the house till you promote it or it’s deeded to an inheritor. This feature is right for these trying to downsize, transfer nearer to household, or discover a dwelling that higher fits their wants in retirement.
What’s the method to purchase a house with a reverse mortgage?
Beneath is an instance of what the method may appear like when shopping for a house with a reverse mortgage. For a lot of seniors utilizing HECM for buy, this course of rolls ahead after they’ve offered their present dwelling.
1. Eligibility: Make sure you meet the age requirement of 62 or older and have adequate funds for the required down fee.
2. Discover a property: The house you want to purchase should meet FHA property requirements and be your main residence.
3. Apply for the mortgage: Work with an FHA-approved lender to finish your reverse mortgage utility and procure pre-approval.
4. Monetary evaluation: The lender will consider your monetary scenario to make sure you can cowl property taxes, insurance coverage, and upkeep prices.
5. Appraisal and inspection: The chosen property have to be appraised and inspected to make sure it meets FHA pointers.
6. Closing: As soon as the mortgage is accredited, you’ll undergo the closing course of, which entails signing the ultimate paperwork and making your down fee.
7. Transfer in: After closing, you possibly can transfer into your new dwelling with out the burden of month-to-month mortgage funds.
Earlier than submitting a reverse mortgage mortgage utility, you’ll be required to full a counseling session with a third-party counselor accredited by HUD. Typically, your mortgage officer can join you with a professional counselor.
