Older couple

For all the well-laid plans that come with preparing for retirement, sometimes things happen that we can’t predict. This is especially challenging when a medical event or a need to be close to family means it’s time to move into a new home.

While the moving process isn’t easy, the nice thing about a Home Equity Conversion Mortgage (also known as HECM), is that it offers you financial options if you know you need to purchase a new home. Sometimes referred to as a HECM for Purchase, this loan allows you to purchase a home and finance it with a reverse mortgage in one transaction.

Here’s how it works:

Mortgage lenders determine the amount of a HECM by looking at the value of the new home along with the age of the borrower. The difference between that number and the sales price is what the borrower must bring to the table from the sale of his/her home.

Here’s how this benefits borrowers:

Let’s say you have a $200,000 home that you’ve paid off. You’re looking to downsize in retirement, so you decide to buy a $100,000 home closer to family. A HECM for Purchase loan could offer you between 40-60% of the home you’re about to buy. In this scenario, if you’re approved for 60% of the home’s new purchase price, you’d have $60,000 and only have to pay $40,000 out of pocket. That means more money in your pocket for what’s important to you, like medical expenses or a rainy day fund. As with any reverse mortgage, the loan won’t become due until the borrower(s) passes away, moves out, or decides to sell the home.

Conversely, a HECM for Purchase can give you greater buying power if you’re looking to upgrade, and the peace of mind that you can live in a new home without the worry of paying a monthly mortgage. Just keep in mind that the borrower remains responsible for property taxes, hazard insurance, and home maintenance, and failure to pay these amounts may result in the loss of the home.

While a HECM for Purchase might not be for everyone, it’s a great option for seniors hoping to move into a new home who’d like to access some extra funds. Contact your local Open Mortgage loan originator and get started on your new home.

Things to know about Reverse Mortgages:
  • At the conclusion of a reverse mortgage, the borrower must repay the loan and may have to sell the home or repay the loan from other proceeds
  • Charges will be assessed with the loan, including an origination fee, closing costs, mortgage insurance premiums, and servicing fees
  • The loan balance grows over time and interest is charged on the outstanding balance
  • The borrower remains responsible for property taxes, hazard insurance, and home maintenance, and failure to pay these amounts may result in the loss of the home
  • Interest on a reverse mortgage is not tax-deductible until the borrower makes partial or full re-payment
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