It’s a fact: people are living longer! And while this is good news for seniors, it also creates additional needs, such as medical needs and cost of living concerns. While Aging in Place is certainly one option – which the reverse mortgage program can address – there is also a new reality: more and more seniors over the age of 62 are looking to move closer to family or downsizing. Less than a decade ago, the reverse mortgage industry addressed this growing need by creating a Reverse Mortgage for Purchase option.
A Reverse Mortgage for Purchase can serve a variety of needs to a senior-aged homebuyer. It can be a great option for seniors who want to move into a home that is closer to family or is better suited for their retirement lifestyle. For example, you might want to move to a warmer climate to escape harsh winters. Or perhaps you want to downsize your current home to a smaller one, or move from a two-story home to a single-story home that is easier to maintain and make your way around.
What is a Reverse Mortgage for Purchase?
A typical reverse mortgage allows a homeowner to tap into that portion of their home’s equity that they qualify for. A reverse mortgage for purchase is the same program, only the buyer uses their down payment to create the required qualifying equity.
It is literally as simple as that. Buy a new home, put the down payment on it, and live the remainder of your years there without ever having to make a monthly mortgage payment.
What are the Benefits of a Reverse Mortgage for Purchase?
The reverse mortgage for purchase program offers several benefits that make it a preferred option for seniors these days. The most significant benefit is that a reverse mortgage for purchase eliminates the requirement of having to make ongoing monthly mortgage payments. Yes - this means you can own a home without the worry and stress of making mortgage payments every month. The only other option that provides this freedom -
no required monthly mortgage payment, is to pay all cash. And, yes, with a reverse mortgage you DO still have 100% full ownership of the home.
Another benefit is that it allows you to expand your home search and selection. If, for example, you felt limited to a $450,000 purchase because that is what your all-cash budget would allow, or because the monthly payment you could afford with a conventional loan program prevents you from affording more, you now can expand that search to $600,000, perhaps, while still accomplishing your goal of not having to make a monthly mortgage payment.
The loan process, including qualifying, is also more relaxed than with a conventional loan. Without the requirement of a mortgage payment, this is a major expense that does not have to be factored into your qualifying calculations. This is especially helpful and impactful for those who are on fixed, retirement incomes such as social security or pension.
Paying All Cash? Why?
I think everyone can appreciate the joy, satisfaction, and pleasure of owning your own home that has no mortgage debt, knowing that you never have to worry about making a mortgage payment again. It used to be that the only way to accomplish this when buying a new home was to pay cash for it. Thanks to the Reverse for Purchase program, this is no longer the case, because now you can buy a new home, put the necessary down payment on it, and carry the balance with a reverse mortgage with no monthly mortgage payment requirement. By eliminating the mortgage payment, the same goals are achieved: the same joy, satisfaction, and pleasure of owning your own home, knowing that you never have to worry about making a mortgage payment again.
Bonus: On a $500,000 purchase, buying with the use of a reverse mortgage could result in an out-of-pocket savings of approximately $200,000!!! (Note: actual amount will vary depending on age of youngest buyer, home value, and current interest rate. Your actual amount could be less, or more). You could use this money to cover desired improvements to the home (new flooring or countertops, perhaps), memberships to local country clubs, travel, or gift it to children. Or simply keep it in your savings or investment accounts.
How Much Can I Borrow with a Reverse Mortgage for Purchase?
As with all reverse mortgage programs, the amount of money you can borrow will depend on the age of the youngest occupying borrower and the value of your home. The older you are, the higher the amount you can borrow. With a HECM, the maximum home value used to calculate your loan amount, as of 2023, is $1,080,300. With a jumbo reverse mortgage, however, the maximum loan amount can go as high as $4 million.
What Are the Risks Associated with a Reverse Mortgage for Purchase?
Many safeguards have been put into place to minimize risk to both the borrower and the lender. Every loan, for example, the HECM comes with a mortgage insurance requirement that insures the lender from potential losses while also protecting the borrower in the even there is a downturn in the market resulting in a loan debt that exceeds the home’s value.
Regarding the latter, all reverse mortgages are non-recourse loans. This means that the borrowers, or their heirs, cannot be held personally liable for the debt. Should a unique scenario occur and the home ends up being “upside down”, the mortgage insurance insures the lender against any potential loss.
The biggest risk, perhaps, to the borrower comes from the requirement that other home associated expenses must be maintained, such as property taxes, home insurance, and HOA dues when applicable. Another requirement is to maintain the home in a livable condition. Of course, these are the same things an owner would need to do even if the home was purchase with all cash, but it is worth pointing out, and failure to do these things could result in the lender calling in the loan, just as it would under a traditional forward loan.
Are There Any Fees Associated with a Reverse Mortgage for Purchase?
Yes, there are fees associated with a reverse mortgage for purchase that are typical with any purchase transaction. These fees may include title insurance premiums, escrow/attorney expense, appraisal, and other traditional closing costs. Also, depending on the type of reverse mortgage (HECM or Jumbo, an up-front mortgage insurance premium would be charged, and the lender also has an origination fee, just as they might with a forward loan. However, these costs are often calculated into the loan, making it easier for seniors to afford them. Additionally, all reverse mortgages require a counseling session with a HUD-approved counselor to occur prior to an official start of production on the reverse mortgage by the lender. The fees for this will vary and typically run between $125 - $175. Counselors are paid direct by the borrower at the time services are rendered. They have no direct affiliation with any lender, and while a short list is generated in the initial proposal package sent out, a lender is not allowed to recommend or steer you to a specific counselor.
How Long Does A Reverse For Purchase Transaction take?
While there are some variables involved that could affect closing times, our turn times for processing a Reverse for Purchase transaction at CrossCountry Mortgage Reverse One division are currently running approximately 18 days and rarely take longer than 30. This, and the fully underwritten pre-approval letter will allow you to remain competitive with your purchase offer.
A BIG component to this, and one that will provide you, your agent and the seller with added confidence and certainty, is getting pre-approved from a lender experienced with these types transactions and working with a reverse Mortgage specialist who can guide you along the way. I am proud to share that we have our own reverse Division, with processors and underwriters assigned solely to handle these types of transactions. It is this type of experience that can make a huge difference in creating a positive experience for our borrowers, and a smooth closing process.
While the qualifying process can be easier with a reverse mortgage, the ability to determine which documents should be submitted to underwriting – and which should not - can make all the difference in the world.
I strongly encourage you to get pre-approved prior to your home search or making an offer. I will coordinate this with you and provide you with a list of required documents. However, as a tip, the following documents are ones you should be prepared to provide, whether you obtain a loan through me or with another lender*:
1. Income Documents – Copies of most recent Social security benefit letter, 2-years W-2s (if self-employed, also provide 2-years federal tax returns); if currently employed, copies of most recent one-month pay stubs
2. Identification - Photocopies of 2 forms of IDs, such as Dl and SS card or passport
3. Asset Statements – 2 months bank statements, 2 months IRA or 401K, or stocks/liquid assets – or most recent quarterly statement, if appropriate,
Please note that all pages of any document provided is required, per lender guidelines. If a bank statement, for example, reflects 8 pages, then all 8 pages are required, even if page 8 has basically no information on it (the underwriter doesn’t know there’s no information unless they see it)
*It may not be necessary to provide every asset or income statement, depending on the information. For example, it might be determined that your social security income is enough for our qualifying purposes. In this even we would only collect documents to support the social security, even if you were employed and receiving other income.
The same would be true for assets. If one savings account, as an example, supports the necessary funds required, any other asset account would be unnecessary, with no need for you to have to provide documents.
I will help you to determine what documents are needed. Your ability to provide timely documents will be the single biggest factor in determining how quickly we can process your loan and/or your pre-approval. Our review times will typically run between 24-72 hours.