It’s safe to say that many people know that a reverse mortgage is a loan that can be used by a older homeowner who wants to extract the equity in their house. But what many people don’t know is that there is a type of reverse mortgage that can be used to purchase a house. And while it’s not for everyone, it could be a retirement gamechanger for a good number of people.
It’s not uncommon to sell off the family home and downsize or relocate as you reach retirement. According to the National Association of Realtors, older adults comprise 38% of homebuyer market, and most choose some kind of financing. Obviously, paying 100% cash for a new house isn’t realistic for most people, but taking on a mortgage in retirement isn’t exactly ideal.
There’s another option out there: a little-known, barely used variation of the reverse mortgage.
It’s called a Reverse for Purchase or, using the official product name Home Equity Conversion Mortgage, a HECM for Purchase. It allows someone over the age of 62 to purchase a primary residence and obtain a reverse mortgage in a single transaction with one set of closing costs, effectively moving into a new home without incurring a monthly mortgage payment.
The deal requires a significant down payment, often more than half the purchase price, and that equity is then used to generate the reverse mortgage.
But most people have never even heard of this loan, even though it’s been around for more than a decade.
Since 2013, lenders have originated just over 11,000 HECM for Purchase loans, according to data analytics firm Reverse Market Insight, with the greatest number closed in California, Florida and Utah. From…