The Wall Street Journal today published an article describing the successful use of a reverse mortgage for purchase that helped a 70-year-old widower move closer to family when it initially appeared he would not be able to afford a new home.
Working with a financial advisor, the man was able to avoid selling assets from his investment portfolio and instead used a reverse mortgage to finance the transaction on the new home.
The WSJ reports:
“…[The client] had cared for his wife during a prolonged illness before her death, and he wanted to keep significant assets on hand to ensure that his children would never have to look after him if a similar situation arose. “But at the same time he was lonely without his family nearby,” Mr. Hanson says.
The adviser saw an opportunity to tap an unusual solution: Take out a reverse mortgage to fund the purchase of a new home near his kids. “Typically reverse mortgages are used when people are running out of money and they’re out of options,” Mr. Hanson explains.
His client was not in that position at all. But under a relatively new Federal Housing Authority’s Home Equity Conversion Mortgage for Purchase program, an older person can buy a home and take out a reverse mortgage at the same time, if they use the loan to build up equity in the house. Using this strategy, the man could purchase a more expensive home and leave his nest egg untouched.
Here’s how it worked. Mr. Hanson ran the numbers and saw that the client would easily be approved for a reverse mortgage. So the client sold his Sacramento home for $250,000 and made an offer on a new $600,000 house near his children. While the deal was closing, the man applied for and received a $350,000 reverse mortgage….”
Written by Elizabeth Ecker