A recent study showed that over 900,000 homeowners have taken advantage of reverse mortgages to pull some or all of the equity out of their homes. Also known as home equity conversion mortgages (HECM), these are an increasingly popular way for homeowners aged 62 and over to access their home’s equity without going through a traditional mortgage process. Now there’s a version of these mortgages available that allows you to purchase a new home or condo with an HECM for purchase so you won’t have any payments due after you move in.
How an HECM for Purchase Works
Like the original reverse mortgage, the HECM for purchase relies upon your home’s equity for the financing. This means that you’ll typically purchase your new home or condo with a down payment of about 40% to 50% of the purchase price. The rest of the transaction works just like a usual home purchase: You’ll have closing costs to cover, and the title will be vested in your name, not the banks. Since the HECM for purchase is the mortgage on the home, it is funded just like a usual mortgage. You’ll still be responsible for property taxes, insurance, and your home’s maintenance. In some instances, you may actually get cash back when the transaction closes. It’s really just that simple.
Benefits of Purchasing This Way
There are a number of benefits to purchasing a new home or condo with this type of financing. A retired couple may want to move closer to their family or into a smaller home and not have the income to support a new mortgage. With this solution, homeowners can sell their current home and use some or all of the proceeds from the sale to purchase a new home with a reverse mortgage to complete the sale.
Whatever reasons may be prompting you to consider moving, the HECM for purchase can be a good option that gets you in a new home without a new mortgage payment.
