3 Ways to Use a Reverse Mortgage for Purchase
Blog BY TWYHER
Mon, 08/08/2016 - 11:17am

Like many Americans approaching retirement, you may have plans to move to a new home where you plan to live out your later years. A traditional reverse mortgage may not seem right for you at a glance because it’s designed to help people age in their current homes. But a reverse mortgage for purchase—a specific type of reverse mortgage—may be an option that can help you through a relocation while shoring up your finances by eliminating mortgage payments.

In a reverse mortgage for purchase, if you are 62 or older and qualify for the loan, you can use the equity in your current home to get a reverse mortgage and put the proceeds toward the cost of a new home, while eliminating your mortgage payments. You can estimate exactly how much you'll need to put down with this online H4P calculator.

With the loan proceeds, in most cases, you will be required to take at least part in a lump sum to pay off the mortgage. But after the mortgage is paid off you do have the option to choose a line of credit if there are any additional loan proceeds left to use down the road.

In either case, you will not have a monthly mortgage payment on your new home. One thing to keep in mind is that you will be responsible for paying the difference between the purchase price of your new home and the reverse mortgage proceeds. Typically borrowers do this by bringing their own cash to the loan closing.

Whatever your goals in retirement may be, a reverse mortgage for purchase can be a helpful tool in a variety of cases.

Divorce

The rate of divorce after age 50, also known as “gray divorce,” has been on the rise, especially among Baby Boomers. The rate of gray divorce has actually doubled from 1990 to 2010, rising from 4.9 to 10.1 divorced persons per 1,000 married people, according to a 2013 study by the National Center for Family & Marriage Research at Bowling Green State University.

If you are over 62 and are in the midst of a divorce and trying to find a new home, a reverse mortgage for purchase may be a helpful tool to use to get yourself into your own home.

There are several ways that you could utilize a reverse mortgage for purchase after going through a divorce, but situations vary greatly depending on who the sole owner of the home is and what kind of divorce settlement you agree upon with your ex-spouse.

Downsizing

As long as people have been retiring, downsizing has been a popular trend for people in retirement. Most of the time retirees want to downsize because they no longer have their children living at home or simply just don’t want an excess of space that requires extra maintenance anymore.

Downsizing and moving to a new climate is also a popular choice among retirees. If you happen to be selling a bigger home in hopes of moving into a smaller home, you can save a lot of money if you use the proceeds from your old home to put a down payment on a smaller, less expensive home.

Many people don’t know this, but a reverse mortgage for purchase can do this and eliminate your monthly mortgage payment in the process. This could help you extend the life of the leftover money from selling your first home, rather than putting it toward mortgage payments.

Cash flow

Another perk of using a reverse mortgage for purchase to move to a new home in retirement is the option to utilize a line of credit. The line of credit option is available for any additional proceeds that are left over after the reverse mortgage for purchase transaction is complete.

Keep in mind for the line of credit, you only will be required to pay interest on the proceeds you use. This can be extremely helpful if you don’t necessarily need the extra money right now, but want to have it as a back-up to help avoid dipping into your retirement savings. With a line of credit you may be able to purchase your new home and go on the vacation you’ve always dreamed of.

The exact amount that you can receive with a reverse mortgage for purchase depends on many factors and the exact plan you choose can also have a large impact on how much interest you pay and how much of the loan proceeds you can utilize. For a more in-depth look at how you could utilize a reverse mortgage for purchase, contact your trusted advisor and utilize these helpful resources I found online:

 Hud.gov: http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/faqs_hecm

HECM for Purchase FAQ: https://reverse.mortgage/purchase-reverse-mortgage-faq