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WSJ: How to Buy a Home Using a Reverse Mortgage

As people’s views of reverse mortgages are turning around, consumers are now realizing the benefit, and possibility, of using a reverse mortgage to finance a new home. The utilization of the reverse product in a different way than a lot of people are used to seeing them was brought up in a recent article by The Wall Street Journal.

“Seniors 62 or older buying a primary residence make a down payment and pay closing costs,” the article writes. “They then get a lump-sum loan that goes toward the home purchase. No monthly payments are required to pay down the debt.”

The interest from the loan is accrued on the loan and the principal and interest become due when the last spouse or co-borrrower moves out of the house or passes away, the article points out.

The utilization of a line of credit for the remaining portion of the reverse mortgage is also brought up. The idea of having it available as a backup or for future use in retirement can be a perk for many retirees.

Many older Americans have trouble meeting the underwriting requirements for a traditional mortgage if they want to purchase a new home. This is mainly because, for the most part, they are not working anymore and a large part of a traditional mortgage is based on income more than assets they have saved up. Using a reverse mortgage to purchase a new home may be a better option for those seniors who may not be able to take out a traditional mortgage.

The misconception of seniors drawing from their home equity too rapidly is also brought up, but if a borrower can use it strategically, purchasing a home with a reverse mortgage allows them to invest in higher-yield investments than their home, Jamie Hopkins, co-director of the New York Life Center for Retirement Income at the American College of Financial Services, said in the article.

For borrowers who have homes over the federal lending limit of $625,500, there is also the option of a jumbo reverse mortgage, which is offered by two lenders, Finance of America Reverse, who offers a loan that typically goes up to $2.25 million and American Advisors Group, who usually offers loans that go up to $3 million.

The warning of foreclosure possibilities, construction requirements, as well as non-recourse loans are pointed out as some things to take into consideration when looking into a reverse mortgage for purchase.

Read the full story from The Wall Street Journal

Written by Alana Stramowski