Just this year, a new Federal Housing Administration reverse mortgage program can help retired homeowners relocate or downsize to a new home without paying closing costs twice or giving up all their savings, even while they’re still in their existing property.
For the past several years, reverse mortgages have become an invaluable tool for seniors with limited income to be able to stay in their homes by turning their equity into cash to cover basic monthly living expenses or even healthcare. But now homeowners can get reverse mortgages to downsize or buy a new home, allowing them to bypass the need to ever have a forward mortgage, according to NewRetirement.com.
Home Equity Conversion Mortgage
This type of reverse mortgage, called Home Equity Conversion Mortgage (HECM), is new legislation enacted by the US Federal Housing Administration to allow seniors to get reverse mortgages on properties they haven’t purchased yet. The FHA created the HEMC program because seniors were selling their homes, downsizing to smaller ones, then taking reverse mortgages on the new homes, paying closing costs twice – on the new real estate purchase and then when they switched to a reverse mortgage.
The U.S. Department of Housing and Urban Development explains that the program is designed to allow seniors to purchase a new principal residence and obtain a reverse mortgage within a single transaction, and is also designed to enable senior homeowners to relocate to other geographical areas to be closer to family members or downsize to homes that meet their physical needs.
How it works:
If you have a sufficient down payment, you can buy your new home without monthly payments. With the HECM for Purchase program, instead of getting the reverse mortgage on your existing home, you inform your reverse mortgage lender that you want to purchase a new home using the reverse mortgage. Your lender will calculate the amount of loan you qualify for as if you already owned the property.
Not everyone qualifies for a Home Equity Conversion Mortgage (HECM) for Purchase transaction, so work with a reverse mortgage counselor or financial advisor to see if the HECM will work for you.