Introducing the Reverse Mortgage for Purchase

In 1989, the federal government began insuring the reverse mortgage or Home Equity Conversion Mortgage (HECM). Over the last 22 years, the reverse mortgage has helped hundreds of thousands of seniors 62 and over, to remain in their homes by giving them access to a portion of their homes' equity without requiring a monthly repayment. With the current condition of the economic environment, this loan has become a life line for many people experiencing increased living expenses, but stagnant sources of income. While using the reverse mortgage to keep seniors in their homes has been the sole purpose for this loan, that all changed with the introduction on the Reverse Mortgage for Purchase program.

In January 2009, the Federal Housing Administration (FHA) began allowing the reverse mortgage for the purchase of a new home. This has opened up a whole new purchasing opportunity for seniors that want to move to a new home. Using the Reverse Mortgage for Purchase, a senior is able to purchase a new home without having to qualify based on income, credit or health. This is proving to be a powerful tool for homeowners looking to relocate, but are unable to do so using a traditional mortgage which requires income verification and intense credit checks. Here is a Reverse Mortgage for Purchase scenario: A senior sells their existing home and walks away with $200,000 in cash. They can not qualify for a traditional "forward" mortgage because they have limited income and they do not want to incur a new monthly payment. The normal solution would be to pay all cash for a new home so there would be no need for a mortgage. The problem is that their purchasing power is limited to a $200,000 house, and it will drain them of all their money; no money for new furniture, appliances, home furnishings, etc. It essentially leaves them right back where they were; house rich and cash poor. Enter reverse mortgage....

This same homebuyer could utilize the reverse mortgage, and based on their age, could finance a portion of the purchase price without having to worry about income or credit qualification. That same $200,000 house could be purchased using the reverse mortgage, allowing the homeowner to keep the majority of their $200,000 in cash and with no monthly payment. Or, this borrower could decide to take all of their $200,000 in cash and purchase a new home for approximately $400,000 using the reverse mortgage. The older the borrower, the more they qualify for.

The FHA formula used to determine the required down payment is based on just 3 factors; the age of the youngest borrower, the current interest rate, and the purchase price or appraised value (whichever is less). The borrower retains full ownership of the home and can sell, refinance or even make monthly payments at any time. A borrower can not outlive a reverse mortgage, and they can never be forced to move as long as they occupy the property as their primary residence and maintain their property taxes and homeowners insurance. FHA insured reverse mortgages are defined as "non-recourse", which means that the borrowers, their heirs, or their estate will never owe more than the home is worth. If there is a deficit when the property is sold, FHA insurance pays the difference. There is no personal liability.

Unfortunately, there has been some confusion lately about the availability of the reverse mortgage, due mainly to recent announcements from a handful of lenders which have decided to stop offering the loans. The reverse mortgage is very much alive and well, and it will continue to evolve and give homeowners more options on how to assist in funding their retirement goals; whether it is remaining in their existing home, or downsizing into a new home to be closer to family and friends.

About the author...Eric Rittmeyer is the President of Fidelis Mortgage located in Perry Hall and is a U.S. Marine veteran. In June 2010, Eric was the first person in the nation to receive the Certified Reverse Mortgage Professional designation (CRMP). For more information, visit www.Reverse-Mortgage-Maryland.com or (410) 668-6501.