What’s required to buy a home with a reverse mortgage?
To buy a home with a reverse mortgage, you need to meet specific eligibility requirements. Here’s what you’ll need:
- Age requirement: You must be 62 years of age or older.
- Standard reverse mortgage requirements: You must meet the criteria for a traditional reverse mortgage, including a financial assessment to ensure you can cover the origination fees and ongoing costs.
- Primary residence: The home you purchase must be your primary residence.
- Home maintenance: You are required to keep the home in good condition.
- Down payment: You need cash available for a substantial down payment. These funds can come from your own savings or from the proceeds you earn from the sale of your current home.
What down payment do you need to buy a home with a reverse mortgage?
The down payment for buying a home with a reverse mortgage varies, generally ranging from 45% to 70% of the purchase price. The exact amount depends on factors such as your age, current interest rates, and the value of the home.
Unlike traditional mortgages, a reverse mortgage does not require monthly mortgage payments. However, you must continue to cover property taxes, homeowners insurance, maintenance costs, and any required HOA fees. Ensuring you have the necessary down payment and can handle ongoing costs is crucial to using a reverse mortgage for your home purchase.
HECM restrictions on down payment sources
When using a HECM for purchase, there are specific restrictions on where your down payment funds can come from. Acceptable sources include your home sale proceeds, retirement savings, or gifted money from a family member. However, there are prohibited sources:
- Bank-financed money or borrowed funds: You cannot use money borrowed from a bank or a family member (who holds the expectation of being repaid).
- Borrowing against assets: Funds borrowed against assets such as CDs or life insurance policies are not permitted.
HECM lenders are required to verify the source of your down payment funds. Simply put, you must use no-strings-attached money that is legally considered yours for the down payment.
What kind of homes can I buy with a reverse mortgage?
A HECM for purchase can be used to buy various types of FHA-approved dwellings, including:
- Single-family homes: Standard single-family residences.
- Planned unit developments (PUDs): PUDs are communities in which individual owners own parcels or units and share ownership of common areas.
- Condominiums or townhouses: Provided they meet FHA approval guidelines.
- 2-4 unit owner-occupied homes: You can buy a property with up to four units as long as you live in one of them.
- Manufactured homes: Must meet HUD guidelines.
- Newly built houses: The home must have a certificate of occupancy in place.
