Did you know you can use a Home Equity Conversion Mortgage (reverse mortgage) to purchase a home? The American Recovery and Reinvestment Act of 2009 (The Stimulus Package) includes a feature for seniors age 62 and over which became effective January 1, 2010. HECM allows for the purchase of a new principal residence using loan proceeds from the reverse mortgage.
The purpose of the program was designed to allow seniors to purchase a new principal residence and obtain a reverse mortgage within a single transaction by eliminating the need for a second closing. The program was also designed to enable senior homeowners to relocate to other geographical areas to be closer to family members or downsize to homes that meet their physical needs, i.e., handrails, one level properties, ramps, wider doorways, etc.
An example is Meghan who recently sold her home for $600,000, netting approximately $515,000. She had originally wanted to purchase a place for $450,000, which would give her a reserve of $65,000. However, what she really liked cost $550,000. She is purchasing the property for $550,000 with $300,000 cash and a $250,000 reverse mortgage. She is very excited because this will leave her with $215,000 in cash reserves. Yet, because it is a reverse mortgage she will not have to make any payments until her home is sold or she no longer uses it as her primary residence.
This is a fantastic opportunity for the senior citizen to buy a new home, live mortgage payment-free and keep an additional nest egg for the future. If you know of anyone who might be in this situation, please suggest that they consult their tax advisor and talk to a Senior Equity Reverse Mortgage Specialist.