Did you know that it’s possible to buy a new home without having to make Principal and Interest mortgage payments every month? With a Home Equity Conversion Mortgage (HECM), seniors can roll two goals, into just one transaction, getting a reverse mortgage and buying a new house, who knew?!! Let’s take a look at how it works.
First, What’s a HECM?
A HECM is a type of government-insured reverse mortgage that allows homeowners age 62 or over, access the equity in their homes. Unlike a traditional mortgage, the borrower receives a portion of their equity from a lender which is converted into cash to be used during retirement, without the worry of being required to make monthly principal and interest payments back to the lender.
How Can I Use A HECM To Buy A New House?
First, check to see if you qualify for a reverse mortgage. If you do, then you need to find a new house or FHA-approved condo. You’ll use a portion of your own money – either the proceeds from selling your current home or cash you have on hand – for the down payment, which will typically be about 40-60% of the home’s price depending on the age of the youngest borrower or non-borrowing spouse (NBS). *
The HECM covers the balance of the rest of the purchase. If you have money left over from your departing home, great! That goes to your bank account and can be used however you choose.
How Is It Easier Than Home Buying With A Traditional Mortgage?
When you apply for a HECM and a new home at the same time, the whole process is closed in one transaction rather than two separate ones. Plus, since you’re using the equity from your own home, that means YOU, not the bank, own your new house. You can live in it for as long as the terms of the loan are met.
So I Don’t Have To Pay For ANYTHING?
You don’t have to make monthly Principal and Interest mortgage payments, but there are still fees to consider. For one, you will still have to pay for your property taxes and insurance premiums, just like a regular mortgage. Plus, since it’s your home, you’ll have to pay for your own repairs and maintenance.
And, while you get equity from your home with a HECM, it’s still a loan. In addition to the principal, you’ll have accrued fees and interest to consider. However, it won’t need to be repaid in full until the last living owner either vacates the property for 12 months or passed away.
What To Do Next
If you’re a senior looking to downsize or move to a new location to be closer to family (or the beach), then using a HECM to buy your new home is a smart move to make.
Contact Alison Calamia, Certified Reverse Mortgage Professional to find out more about how you can qualify for a HECM. or give us a call at 504-833-2111 to find out all your options for getting a new home.
*information is based on current rates as of 05/01/23. Available funds vary depending on age and rate. Borrowers must pass financial assessment.