How Does a Reverse Mortgage for Purchase Work? A Step-by-Step Guide

If you're thinking about buying a new house and are considering an HECM (Home Equity Conversion Mortgage) for Purchase, let’s break it down in simple terms. I’ll explain how it works, using clear steps and keeping things straightforward by referring to your old house (the one you already own) and your new house (the one you want to buy).

Step 1: You Want to Buy a New House

You’ve decided to move into a new house. Maybe it's closer to family, or perhaps it’s smaller and easier to manage. You’re 62 years old or older, and you don’t want to drain your savings or take out a regular mortgage with monthly payments. An HECM for Purchase could be the solution you're looking for.

Step 2: Selling Your Old House (Optional)

You might choose to sell your old house to get money for the down payment on your new house. The money you receive from the sale of your old house is called your “equity.”

Alternatively, if you have enough savings, you could use that for the down payment and keep your old house for now.

Step 3: Making a Down Payment on the New House

To buy your new house using an HECM for Purchase, you’ll need to make a down payment. This down payment is usually larger than it would be with a traditional mortgage, and it depends on factors like your age and current interest rates.

For example, let’s say your new house costs $300,000. Based on your age and the rates, you might need to put down around $150,000.

Step 4: Getting the HECM Reverse Mortgage for the New House

Once you make the down payment, the HECM reverse mortgage will cover the remaining cost of the new house.

So, if your new house costs $300,000 and you’ve already made a $150,000 down payment, the reverse mortgage will pay the remaining $150,000.

Step 5: Moving Into Your New House

Now, it’s time to move into your new house! The major benefit of using an HECM for Purchase is that you don’t have to make monthly mortgage payments on this new house. Instead, the loan amount (the $150,000) grows over time, as interest is added to the balance.

Step 6: What Happens to Your Old House?

If you didn’t sell your old house earlier, you can decide what to do with it now.

• You might sell the old house and put that money into savings.

• Or, you can keep your old house if you prefer. You're not required to sell it to get the HECM for Purchase, but remember the reverse mortgage only applies to your new house.

Step 7: Repaying the Loan on the New House

With a reverse mortgage, you don’t need to repay the loan on your new house until one of the following happens:

• You sell the new house.

• You permanently move out (like to a different house or into a care facility).

• You pass away.

When any of these occur, the loan is usually repaid by selling the new house. If it sells for more than what you owe, the extra money goes to you or your heirs. If it sells for less, insurance steps in to cover the shortfall, so your family isn’t left with any debt.

Conclusion

In summary, an HECM for Purchase lets you buy a new house without having to make monthly mortgage payments by using the equity from your old house or your savings for the down payment. The reverse mortgage covers the rest of the cost, and the loan is only repaid when you move out or sell the new house.

If you’re ready to make your next move and want a way to buy a new home without worrying about monthly mortgage bills, an HECM for Purchase might be the perfect option!