As aging Americans consider selling their homes for less burdensome living accommodations that allow them to age in place, or consider home ownership for the first time, a Home Equity Conversion Mortgage (HECM) may be a viable solution, says “The Mortgage Professor,” a.k.a. Jack Guttentag in a recent article. And, he says, it can offer a number of different options, depending on the situation.
Since Congress’ authorization of the HECM for Purchase program in 2008, under which seniors can buy a house and take out a HECM reverse mortgage at the same time, the qualification requirements associated with forward mortgages are avoided, Guttentag notes in “Should Seniors Buying a House Do It With a HECM Reverse Mortgage?“
“Senior house purchasers now fall into three groups: those who pay all-cash and intend never take a reverse mortgage; those who pay all-cash and plan to take a reverse mortgage later; and those who take a reverse mortgage when they purchase the house,” Guttentag writes.
Seniors who are able to purchase homes with an all cash payment, and want to leave a debt-free home to their estate, will avoid reverse mortgages, he says, adding that the same is true for those with dependent children living with them and those seeking a new home with specialized construction.
“These three groups of senior home purchasers who should avoid reverse mortgages comprise only a small part of the total,” he says. “Most purchasers would do well to at least consider a reverse mortgage.”
However, paying for a home in all cash should not automatically eliminate the option for a reverse mortgage.
“If they elect to take [a reverse mortgage] in the future, they will be older and their house will be worth more, both of which increase the amounts they can draw under a reverse mortgage,” he says, noting that on the flip side predictably higher interest rates in the future will reduce the amounts seniors can draw under a reverse mortgage.
And those who pay all cash but opt for a reverse mortgage at the time of purchase have even more options.
“They can use all the borrowing power of the reverse mortgage to minimize their asset liquidation,” he says. “A large proportion of senior purchasers do this, but in some cases it may be ill-advised because no borrowing power is left for future use.”
Read the article in its entirety here.
Written by Cassandra Dowell