HuffPost: 4 Ways to Use a Reverse Mortgage for Purchase

Even though many older adults wish to age in place, there are also many who want to move to a new home. That’s where a Home Equity Conversion Mortgage (HECM) for purchase can come in.

A HECM for Purchase allows seniors to use a reverse mortgage to fund part of the cost of a new home with one of four options, explains a recent Huffington Post article written by Jack Guttentag, known as The Mortgage Professor.

In a lot of cases, seniors seek a new home to sometimes move to a new climate or to downsize from the size of their current home and the financial burden it puts on their finances, Guttentag writes.

Advertisement

The reverse mortgage for purchase product is an alternative to a standard mortgage that is ideal for seniors who have sufficient equity in their current home, but want to move. Each of the four HECM for Purchase options depend on if someone is aiming to maximize their cash draw and minimize asset liquidation or vice versa.

“She can select either a fixed-rate or an adjustable-rate HECM, with the adjustable carrying a lower interest rate at the start but possibly a higher rate in the future,” the article writes. “She can also elect to limit her cash draw to 60% of her maximum borrowing power, which qualifies her for the $1500 mortgage insurance premium, or she can draw more cash and pay a $7500 premium.”

The HECM for Purchase is a much more complicated process than a forward mortgage, which is why the options that are available for a HECM for Purchase should presented to potential borrowers so they can make an educated decision on which option would be the best fit.

Read the full Huffington Post article.

Written by Alana Stramowski

Join the Conversation (3)

see all

This is a professional community. Please use discretion when posting a comment.

  • Oh my…We wonder why the HECM for Purchase hasn’t exploded
    in the real estate community and this article clearly proves why.

    With all due respect to the The Mortgage Professor the HECM
    for Purchase primary advantage is NOT “seniors
    seek a new home to sometimes move to a new climate or to downsize from the size
    of their current home and the financial burden it puts on their finances.”

    Once again, we have someone inside our industry touting the
    use of a reverse mortgage to ease the “financial burden of the perspective
    client.” Nothing could be further from the truth.

    You also do not need “sufficient equity in their current
    home.” Although in many cases the down payment does come from the sale of the
    present home, it also can come from any other asset such as savings, sale of
    stock, money market and many other sources.

    The comment “The HECM for Purchase is a much more
    complicated process than a forward mortgage” is also false.

    As in a traditional reverse, the process is much simpler
    than a forward mortgage. Even with the addition of Financial Assessments, the
    process of securing a reverse mortgage is so much easier than securing a standard
    (forward) mortgage.

    Our present formula for Residual Income is so much easier
    than the standard 28/36 ratios required in a forward loan. We have no credit
    score requirement as does the forward world, and we base the borrower’s credit
    primarily on the last 2 years of their lives. (As opposed to the forward world which
    goes back many years for any credit blemishes)

    I have a great deal of respect for Mr. Guttentag but in this
    case the message is way off base.

    We must stop presenting ourselves as the product for those
    with “financial burden.”

    Rather than give you my opinion on the true market for the
    H4P please just go to the link below. This is an H4P class I gave in Ft.
    Lauderdale several months ago for 50+ real estate agents. Please take a few
    minutes and see their reaction..

    • Mike,

      It is clear you are not older than 62. Jack correctly states: “…to downsize from the size of their current home and the financial burden it puts on their finances.” While I am not as old as Jack, let me correct you about a few things.

      Those of us who are older have homes with pools, one acre lots, large gardens, rooms we rarely use but have to clean, roofs we cannot afford to replace, etc. We no longer have the cash coming in to easily pay for the cost of pool maintenance and regular cleanup, house cleaners, deferred maintenance, yard maintenance and grass mowing. We do not want to waste our money by getting a traditional reverse mortgage to do all of that. Why not get a smaller home that our budget will allow us to easily maintain, etc. and get our HECM with that transaction?

      Mike, after watching the video, I have no idea what “the true market for the H4P” is. Is it Realtors selling higher priced, lower priced or some range in between? Is it seniors with some minimum amount of net assets?

      Vague rants are not helpful.

  • I agree with you Mike, but the Huff Post is (sadly) something many people read. So, perhaps we can hope that the somewhat positive spin on it will cause someone to ask questions of one of us to see how it might work for them.

string(99) "https://reversemortgagedaily.com/2016/07/05/huffpost-4-ways-to-use-a-reverse-mortgage-for-purchase/"

Share your opinion