Home   Blog   Home Purchase   Reverse Mortgage for Purchase: Down Payment Requirements

Reverse Mortgage for Purchase: Down Payment Requirements

January 5th, 2012
     

Save up to $6,000 on your reverse mortgage for home purchase with our exclusive $0 Origination Fee  – Request Quote Today!

seniors-home-purchase

A reverse mortgage can be used in the purchase of a new home in what is called a Home Equity Conversion Mortgage Purchase. Basically, a new home is bought at the same time a reverse mortgage is taken, and the transaction is rolled into one.

It’s an option for homeowners who want to relocate, either to be closer to family, to downsize, or move to a home that better meets their needs—a home without stairs, for example—at the same time as converting home equity into cash.

In order to qualify for a purchase reverse mortgage, however, the down payment on the new property must be covered either by the sale of the previous home or through savings or other means.

Sources of Down Payment

Proceeds from the sale of the previous home and savings are the most common ways for borrowers to meet the down payment requirement. There are other acceptable sources of funding under the Federal Housing Administration, which is the insurer for the loan.

Those that are NOT acceptable include sweat equity, trade equity, rent credit and cash (or equivalent) from someone benefiting from the reverse mortgage transaction or a third party that is reimbursed by someone benefiting from it. Cash advances from credit cards are also not accepted.

For sources that will work to finance the equity portion of the loan, borrowers can use an earnest money deposit or a withdrawal from a savings or checking account or retirement fund.

Some forms of gift money are also OK, including gifts from family members, employers, a charity or government organization with an interest in home ownership initiatives, or a close friend who has a documented interest in the borrower. Gifts from anyone involved in the transaction in any way are not acceptable.

Other, less common sources of funding can also be used, such as collateralized loans, savings bonds, employer assistance programs, and other means. The Federal Housing Administration defines all acceptable sources on its website.

Property Types

Most property types can be used in a reverse mortgage for purchase, with several exceptions. The home must not be under construction, and must be habitable.

Co-ops, boarding houses, B&B’s and newly constructed homes where a Certificate of Occupancy has not been issued are ineligible.

Certain types of manufactured homes also may not be used. Those built before 1976 and those built since then but failing to comply with Department of Housing and Urban Development standards won’t fit the bill for a Purchase reverse mortgage.

Down Payment

Purchase Reverse Mortgage Down Payment Chart

Purchase Reverse Mortgage Down Payment Chart | *Down Payment Example  4.00% Note Rate / APR 5.73%

The amount that can be borrowed is dependent on age and home value. It’s best to check with a lender on the amount that will be required as a down payment and whether sources of funding will be needed in addition to the proceeds of the previous home sale.

For those who do qualify, the reverse mortgage purchase can be used as a tool toward funding retirement in addition to moving to a new home that is more suitable for aging in place. Use our Reverse Mortgage for Purchase Calculator to estimate your down payment requirement or call us Toll Free (800) 565-1722

Useful Links:


Reverse Mortgage for Purchase: Down Payment Requirements By Mike Branson – Add me to your circles

Tags: , , ,

16 Responses to “Reverse Mortgage for Purchase: Down Payment Requirements”

  1. Jeff says:

    Hi,

    I am 71 years old, and I am deciding to buy a new home in Orange county ca. I have 300000
    for down for a single family cost about 450000. Can I get 150000 dollars as reverse mortgage? how much interest and other cost. Can I pay interest amount yearly.

  2. Mike Branson says:

    Hi Jeff,

    Yes to all of the above! And you have several options you can use to do it. You could choose to use a fixed rate, but then you would have to take a full draw of the amount available to you and that would be more than $150,000. However, if you really want a fixed rate mortgage, you could use the fixed rate reverse mortgage and pay back any portion of the funds you did not want at any time without penalty. For example, I don’t have your exact date of birth or know your fees so these are estimates, but at 71 years of age, you would be eligible for approximately $301,950 and after the fees, you would have somewhere in the neighborhood of $290,786 paid toward the purchase price with the reverse mortgage leaving you needing to bring in approximately $159,214 (these numbers are approximations in that I do not know if you are 71 but will be 72 within 6 months which would make your benefit amount higher or what your actual closing costs would be).

    But with the fixed rate program, if you did not want to have this high a mortgage and wanted to pay down that amount, you could do so without penalty at any time and yes, you could also pay any amount per year that you wanted to keep your balance down as well after that. You just have to remember that any repayment is credited first to HUD mortgage insurance premiums, any outstanding fees, then to interest and then to principal. The net effect is the same on the amount of interest that you pay as any repayment lowers the amount of interest you pay, but it can effect interest deduction on any repayments.

    Then you can also consider purchasing with an adjustable reverse mortgage and you can use any amount you desire. With the adjustable reverse mortgage, you can take only the amount you want ($150,000), pay the rest of the purchase price yourself and then the remaining portion of the reverse mortgage would be available to you later in a line of credit that you could access at any time. You do not HAVE to borrow the funds ever, but they would be there if you needed them and you do not pay interest on them if you do not borrow them. The line of credit grows on the unused portion so at the end of 10 years, the $138,000+/- line of credit would grow to $225,000+/- so you would have more funds available to you if needs at that time. The costs would vary with the type of loan you chose and you could even lower them significantly by using the Saver program with the line of credit and lower your costs by almost $9,000 up front on the HUD mortgage insurance premium (but you would also have a lower credit line available to you after the close of the loan than outlined above).

    So regardless of your preference, whether you want a fixed rate or an adjustable loan, there is a way to allow you to purchase with a reverse mortgage and accomplish exactly what you are trying to do. I would encourage you to contact us so that we can show you all the scenarios tailored to your parameters.

  3. Joe Gerstein says:

    I am purchasing a new house. I was going to get a conventional mortgage and deposited a lot of money with the builder several months ago to complete the home. The home appraises at $425,000. I gave him $170,000 which he still has most of it. We are living in the house until we get a mortgage. How can I meet the down payment requirements for a reverse mortgage since he has the money?

  4. Mike Branson says:

    Hi Joe,

    The reverse mortgage only requires that you verify the down payment, the transfer of the money and then the source of the funds. If the contract between you and the seller calls for you to deposit $170,000 at the time the contract was signed, you would have to show that you had the funds to deposit that amount at the time you made the deposit, a copy of the cancelled check showing the transfer of the funds and a minimum of three months prior statements to show that the funds were available for three months before they were given to the builder. Depending on your age and benefits under the program, you may need to verify additional funds and they would need to go through the same sourcing routine.

  5. Nancy says:

    What are the lifetime rights of one person passes away?

  6. Dennis Royer says:

    I want to purchase a new home ($425,000) using a reverse mortgage. I’m 63 and my wife is 45. What happens if I die and she is not 62? What would be required for her to be able to stay in the home since I would have been the only one on the “deed” because of the rules of reverse mortgage purchase. As she would be the benificary to the home at my passing.

  7. Mike Branson says:

    The only way you could do a reverse mortgage would be if your spouse was not ever brought on title and this is something we do not recommend lightly. There can be some very high risks associated with this action as well as the fact that many lenders and secondary sources will be eliminating this option completely as of February 1, 2013.

    Because the loan becomes due and payable when the last borrower on the loan permanently leaves the home or passes, if the younger borrower who would not be on title or on the loan is not ready to move when this event occurs and you do not have other provisions in place beforehand to provide for this, it could create extreme hardships on the remaining spouse. This has led to the unplanned displacement of the previously under-aged spouse in many instances. This creates confusion, hardship and has been the start of recent lawsuits from borrowers who truly did not understand the ramifications of such action at the time they first received their reverse mortgages.

    Some provisions borrowers have informed us of that worked for them include an insurance policy that paid the mortgage off when the older borrower passed; a second property that the borrowers owned that the spouse intended to occupy after the passing of the older borrower anyway; and also the plans that the younger spouse fully intended to move to another state to be with family if and when the older spouse was no longer living anyway. Absent a clear alternative such as one of these, it would be very sad for the spouse of a reverse mortgage borrower to be uprooted from his/her home at the worst possible time if that was not in the plans simply because the loan was now being called due and payable with the passing of the borrower and the remaining borrower did not have the means to refinance the loan in his or her own name at that time. Because the reverse mortgage balance rises with no payments and the accrual of interest, it would only get harder for the previously under aged spouse to refinance the loan later in her own name.

    You are correct, she would own the home at the time being your heir, but that would not help her very much if she did not have the means to refinance the home in her own name at that time of your passing. If there was very little or no equity due to a rising balance she might be left looking for a place to live with no nest egg to rely on to help establish her in another location (not to mention another situation like we have just had where housing prices fell sharply). We do not recommend this action for borrowers unless they know the risks and know that they have made provisions such as the ones listed above to protect the under aged spouse.

  8. Mike Branson says:

    Hi Nancy,

    I’m not 100% sure I understand your question but let me take a stab at this. If you are on a reverse mortgage jointly with another individual and one of you passes away, nothing happens to the loan, it remains intact providing at least one of the original borrowers is still living in the property as their primary residence. You can remain in the property for life without having a monthly mortgage payment as long as you abide by the terms of the reverse mortgage (i.e. pay your taxes and insurance and maintain the home, etc). I hope this answers your question but if I did not, please feel free to let me know and I’ll be happy to give it another go.

  9. Christine Ballard says:

    Is the top sales price at $625,000? I want to purchase a home in a CCRC and the price is $950,000. I am assuming the appraisal will come in at this amount. This is a full equity purchase. I have the funds for the down payment, but where does the rest of the funds needed to close come from? The difference between the down payment and proceeds to fund the loan do not add up to the price…please explain. It is appreciated. Thanks.

  10. Mike Branson says:

    Hi Christine,

    There is no maximum “sales price”. There is only a maximum HUD Lending Limit of $625,500 which means that your benefit amount will be determined from this amount, the appraised value or the sales price, whichever is less. You can buy any value property you wish, but if the home’s selling and appraised value is over $625,500 you will not receive any additional benefit on the reverse mortgage than if it was $625,500 and you will have to bring in the difference in cash to close the loan.

    For example, a borrower born on January 1, 1945, purchasing a property for $625,500 would currently receive a principal limit of $407,826.00. From that, you would subtract the HUD Mortgage Insurance Premium, the costs to obtain the loan and the recording costs (which vary around the country) and the borrower would have to bring in approximately $232,545.00 to close the loan and the reverse mortgage would cover the rest. However, if you wanted to buy a home for $950,000, you could certainly do that, but the reverse mortgage benefit would remain the same, $407,826. this means you would have to pay the difference of nearly $325,000 more in cash to close or you would need to put down approximately $557,045 to purchase that home using a reverse mortgage.

    The reason these two amounts don’t add up to the $950,000 ($407,826 + 557,045) is because of the fees incurred with the loan. This example was used in a California closing where the closing costs are low. If you were to use a property in Florida or Texas where the title costs and the state costs are higher, these costs could be $5,000 to $7,000 or more higher on a property of this value. But the funds for closing come from you and the reverse mortgage loan.

    Feel free to call us Toll Free 800-565-1722 or use our purchase calculator found here.

  11. Jeanne' m. Hurney says:

    All very informative..I am 72 May 1941…I am seeking to purchase a house in Florida..where I live.. I am not clear what process…application..etc I need to proceed..and be ready when I find the house I desire…Do realitors ..selling agents not like to deal with this process?

    I had put a deposit on a home…the realitor took another buyer and never responded to our offer….the prop[erty was near me and I followed it…The selling agent would not get back to my realetor.. I’ve wondered what I need to do to be ready…so my offer is taken seriously…..Can I have an agent process the purchase ……..the house bI desire is a neighbor’s….We did not get along ….I don’t want that issue to cloud the possibility of purchase……..I need a home in an area in demand……I have a husband with cancer and am trying to figure this out..Your help would be appreciated..Thank you

  12. Mike Branson says:

    Hi Jeanne,

    This is a lot to cover here so let me just say that you can get a reverse mortgage to purchase a home. Due to the program though, there really isn’t a lot of “prequalification” that can be done. We can run your information through the calculator and determine your benefits and can even run credit verify that you have the necessary assets to close the loan, but in the end, so much of the HUD reverse mortgage lending process will also revolve around the property you choose and the program requirements for terms of the purchase, and HUD’s program parameters at the time you are ready to proceed, that the prequalification is not really completely possible. Some Realtors are not familiar with the program and so they do not present offers from reverse mortgage buyers in a very good light to sellers. Some sellers shy away from the offers because they simply don’t understand the program and people naturally avoid things they don’t understand.

    When done correctly, the loans can be closed as quickly as regular forward loans but there are many rules you have to follow that are not typical of forward loans. This does not mean that the loan is not a very good vehicle for seniors to finance the purchase of a home, it just means that there may be a lot of extra education required in the beginning. We have been able to help several buyers simply by talking with prospective selling agents and in more than one case, sellers themselves. One selling agent even became a big proponent of purchase reverse loans after he went through the entire process. You may want to try to get them to learn more about the program and process, it just might help.

  13. Bridget says:

    Hello I would like to purchase my grandmothers home with reverse mortgage. She has moved into nursing home and will no longer be able to go back into her home. I wanted to be able to keep the home but was told I had to do as an investment property and put 20% down payment. I don’t have that type of money but I know I can mortgage the home. It only appraises at $45000. I really hate to see my grandma house foreclosed. She has lived to be 102 and out live what she was hoping to leave to her family. We tried to keep her in home therefore we did reverse mortgage but that money ran out with the cost of someone coming to in take care of her. Any advise on who can help with this? Thanks

  14. Kay says:

    Just wondering,

    My grandma is the last one alive. My dad and his siblings And gpa have all passed.
    She has property with a reverse mort.
    My cousins are trying to squeeze her, but i dont want to pry and ask her if they can get the property? Cause they sure dont act like they know. Anyway, i dont want the property- its a lot to maintain and i dont like my hometown. But id like to know if it can be bought?

    thanks

  15. Mike Branson says:

    Hi Kay,

    The property always belongs to your Grandmother. When she passes, then the title will pass in accordance with whatever provisions she has put into place. Whoever is her heir(s) and receives the property, will have the option of paying off the loan and keeping the property, selling it and keeping the equity or if there is no equity remaining, they may elect to let the lender sell it and they will have no further liability – regardless of how much is owed and how much the property can sell for. If the heirs wish to keep the property and the outstanding balance is higher than the property’s current value, then the heirs can pay off just 95% of the current market value if that is less than the amount owed and still keep the home. They would not have to “buy it” as you grandmother never lost title to the property as such, her heirs would also already own it.

  16. Mike Branson says:

    Hi Bridget,

    I’m not sure I can help with this – your real question is what can you do about financing the home in your name. You don’t have to “buy” the house, your grandmother still owns it so it would be up to her to Deed the property to you if that is her desire. From there, the question would just be what type of financing for which you would qualify and what that lender’s requirements would be. I’m sorry, I don’t work with forward loans so I do not know what would be available or for what you should apply, especially if you do not intend to occupy the home but I would encourage you to contact some local lenders and inquire what lending programs they have available. Just remember that you would not be “buying” the home since you do not intend to put a down payment down.

Leave a Reply