If one of the borrowers is 62 years or older, and if the buyer has approximately half of the purchase price in cash – plus closing costs -, the borrower/buyer can use an FHA Reverse mortgage to buy a home.
The borrower/buyer will pay approximately half down in cash plus closing costs and get an FHA reverse mortgage for the other half approximately.
There will be no mandatory payments on this FHA reverse to purchase loan.
The HECM for Purchase is an FHA insured home loan. Monthly payments are not required because the borrower/buyer will have around 50% equity in the home.
A borrower/buyer who is single must be age 62 or older. When a couple are buying a home jointly, at least one of them must be 62 or older.
The home bought must be used as a primary residence and occupied within 60 days of closing. The property can be a single family home, a duplex, a triplex, or a four-plex, provided that the buyer occupies one of the units. The buyer may rent out the other units and keep the rent income.
The property can be an FHA approved condo or FHA approved manufactured home.
If the condo or the manufactured home does not meet FHA requirements, the buyer may take out a non-FHA reverse mortgage.
The borrowe/buyer must complete a HUD approved counseling session before applying.
The borrower/buyer must meet financial eligibility criteria as established by HUD. Credit score is not important. What is important is that the borrower/buyer shows a history of paying his housing bills and will have sufficient income at least to pay the taxes, insurance, utilities, and other basic living costs.
The amount of money the borrower/buyer may borrow from the FHA reverse mortgage increases as the age of the burrow/buyers increases. The rates are low and variable. There will be a line of credit that will keep growing every year by the same percentage as the variable interest rate plus .5%.
The amount the borrower/buyer may borrow is around half of the lesser of the appraised value, the purchase price, or the FHA lending limit. The 2021 lending limit is $822,375. For a closing in 2021, with a purchase price of $822,375, the buyer would have to pay around $411,000 down plus closing costs and would be able to get an FHA reverse mortgage for the approximate balance. FHA loan limits will go up in 2022 to perhaps $937,000.
The funds available to the borrower/buyer may be restricted for the first twelve months after loan closing.
The borrower/buyer must attend HUD counseling before applying.
The FHA reverse mortgage is a non-recourse loan. If the borrower/buyer fails to pay the lender can only foreclose on the home and may not sue for any deficiency judgment.
At closing a mortgage insurance premium will be added to the loan balance.
An example: Mary is 63 years old. She sold her previous home and netted $350,000. She wants to retain $50,000 and put $300,000 down on a new purchase and borrow the balance using an FHA reverse mortgage for around $250,000. In theory the borrower/buyer could purchase a home worth up to $550,000 and not have a mandatory mortgage payment.
The unpaid interest would accumulate, but in most parts of the country the value of the home will increase faster than the unpaid interest will accumulate.