Reverse mortgages are known as a way to supplement a senior’s fixed income by tapping equity that has accrued in their home. But reverse mortgages or purchase reverse mortgages may not be the best way to purchase a new home. Whether you would like to upgrade to a new home or even downsize, lets investigate how a purchase reverse mortgage can affect your bottom line and why it may not be the best option in purchasing a new home.
A purchase reverse mortgage or Home Equity Conversion Mortgage for Purchase, or HECM for Purchase, allows older Americans to buy a new home by putting a reverse mortgage on it (sounds a little predatory if you ask me).
A reverse mortgage is a type of home equity loan that allows homeowners to borrow against the value of their homes. Reverse mortgages aren’t for everyone. In fact, they were specifically designed for older Americans whose net worth was tied up in the homes they already owned.
Generally to qualify for a reverse mortgage you must meet certain criteria:
- The minimum age is 62 years old.
- Borrowers must own the property outright or have a considerable amount of equity in it.
- The home must be the borrower’s primary residence.
- The borrower must be able to pay the home’s property taxes, insurance premiums, homeowners association dues and any other ongoing property costs.
- The borrower must have no delinquent federal debt.
Cons of a purchase reverse mortgage or Home Equity Conversion Mortgage for Purchase:
- 2 sets of home expenses (1 from the original home & 1 from the new home)
- While some lenders offer "flexible repayment options" or "no payments" these are warning signs and you should run far away when you see these because there is no such thing as free.
- Extremely large down payments (ranging from 40-70%)
- Increase likelihood of foreclosure on both properties
In conclusion, a purchase reverse mortgage or Home Equity Conversion Mortgage for Purchase, may not be your best option if you are looking to get a new home. If you own your home outright or have high equity in your home taking the equity out to buy another liability would not be your best option as you would have 2 sets of home expenses; including but not limited to maintenance, property taxes, and insurance. Not to mention, you could have 2 sets of payments to make.
If you really need to purchase a new home you would be much better suited to sell your original home to purchase the new one. If you have limited or fixed income, consider seller financing the property. This would allow you to essentially be the bank on the transaction and gain interest income and relinquish the costly expenses of home ownership.
When you go to buy the new home instead of having to put down 40-70% with the purchase reverse mortgage or Home Equity Conversion Mortgage for Purchase, you would only have to put down 5-20% because it will be owner-occupied and technically you could utilize an FHA or conventional loan.
If you simply don’t want to put up with the hassle of owning that house any longer, and if you don’t want to put up with the hassle and time-consuming expense of selling your property the traditional way, let us know about the property you’d like to be rid of and sell your house fast for cash. Talk to someone in our office before submitting your property information by calling us today at (678) 999-3577 or contact us here!
If you do not need to purchase a new home and you own your home outright. I would strongly encourage you to stay put (and that's coming from a guy who buys houses for a living)! It is much better to have an asset than to assume debt later in life and be stuck with monthly payments while you may be on a fixed or limited income.