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Man welcoming family to his home

Get a new home without paying a mortgage? It’s possible!

If you’re 62 or older, you may be eligible for a reverse mortgage purchase loan (also called an HECM for purchase loan). They’re designed for older people who want to get a smaller home, move closer to family, or find a home that will better fit their physical needs as they age – all without paying a mortgage.

Reverse mortgages are a little tricky to understand, so let’s go over what makes them different from a traditional mortgage.

Traditional mortgage vs a reverse mortgage
In a traditional mortgage, when you’re ready to buy a home, you ask your mortgage company to lend you money to pay the seller. You promise to pay the lender back in monthly installments over a set number of years. Each month, your loan balance decreases until it is paid in full.

A reverse mortgage is a secondary loan available if you’re a homeowner who is 62 or older and owns a considerable amount of your home. The equity in your house is your collateral and you promise to pay back the loan with the sale of your house. The funds come to you as a lump sum of cash, monthly installments, or a line of credit. Your loan accrues interest, so the balance increases over time (especially if you choose not to make payments).

Why get a reverse mortgage purchase loan?
Imagine you’re in your mid-60’s and you’ve paid off the home you bought when your kids were young. Now that you’re retired and living off your savings, you wish you could move closer to your grandchildren. Now that your income is limited, how can you afford to pay a mortgage each month?

This is where reverse mortgage purchase loans are designed to help. With a considerable down payment (usually 45 –70% of the sale price, which is often made possible by the buyer selling their current home), your lender will give you a loan to purchase your home without requiring you to make monthly payments towards it.

How does a lender make money then?
Like most loans, your reverse mortgage purchase loan accrues interest and the loan balance increases over time – especially if you don’t make payments towards it. For many borrowers, that’s not a problem. The loan is still a good financial option for them because homes historically grow in value in the US. In the past few years, appreciation has been crazy – 19% in 2021. But it’s generally closer to 4% annually. So, for most people, over time their home’s value outpace the loan balance so they know they can pay the loan off when they sell their house.

Can you make payments if you want?
Of course, but it’s not required.

Paying off your loan
The balance is due in full when you move away or die. Usually, it’s paid off with the proceeds from the sale of the home. If you’re lucky, you may have money left over for your estate or heirs – but you’ll never owe more money than the home is worth.

You and your heirs are protected from owing more than the home’s fair market value – a huge advantage to this type of loan.

Want to learn more?
Reverse mortgage purchase loans are insured by the Federal Housing Administration. We’re authorized lenders and are happy to meet with you and your children to help you decide whether this loan is right for you. Call us today to set up a free consultation.

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