Using a Reverse Mortgage for Home Purchase
A Guide for Consumers, Real Estate Agents, and Builders
You May Prefer 88% of people
at or near retirement say it’s important to remain in their homes as they age*.
*according to a report from the University of Michigan. May 2, 2024 “Older Adults’ Preparedness to Age in Place”.
But what if your current home isn’t the one you want - or need - in retirement?
A home in a low maintenance community
To be closer to family or friends
A home designed for first floor living
Living somewhere that has a warmer climate
Enjoying a new area that is more affordable
A community with more amenities and social opportunities
To obtain your dream home
The opportunity to purchase a multi-family property
The ability to buy a second property
Whether you’re nearing retirement or already in it, you can buy a home that better fits your needs, goals and desires - without the financial burden of a traditional mortgage or using all your much needed cash to purchase.
Introducing
the Home Equity Conversion Mortgage (HECM), also known as a Reverse For Purchase.
You’ve dedicated years to building your retirement savings, and now it’s time to make them work for you! If you’re living on a fixed income, the last thing you want is to dip into your nest egg or add another monthly payment for a new home that fits your retirement lifestyle. That’s where a reverse mortgage comes in!
Right-Size Your Home with NAF’s Reverse For Purchase!
Expand Your Purchasing Power
This fantastic financial tool helps homebuyers in or near retirement boost their buying potential.
How It Works
If you’re 62 or older, you can combine a one-time investment with HECM loan proceeds to buy a new home or condo. This means more buying power and a wider range of homes to choose from!
No Monthly Mortgage Payments
Unlike traditional mortgages, monthly mortgage payments are optional with a reverse mortgage.*
*Borrower must continue to pay property taxes, homeowner’s insurance, and home maintenance costs.
Program Requirements
You must be age 62* or older (or 55+ in many states – ask your NAF Reverse loan professional)
The home you’re purchasing must be your new primary residence; however, there may be opportunities to refinance an existing primary residence with a reverse to purchase an investment or vacation property
*non-borrowing spouses under age 62
Eligible Properties
Single family homes
Townhouses or planned unit developments
FHA-approved condominiums
Manufactured homes meeting HUD guidelines
Important Information
Your Investment
The funds you contribute towards the purchase can’t be borrowed. They should come from your savings, the sale of your current home, or a gift from a family member.
Counseling Session
To ensure you’re fully informed, we’ll arrange a loan counseling session with an independent, HUD-approved counselor. They’ll guide you through the reverse mortgage process, program details, and your loan’s specific terms.
Income Verification
To keep things running smoothly, we’ll need to confirm you have adequate income to cover ongoing obligations like property taxes, homeowner’s insurance, HOA dues (if applicable), and home maintenance.
How Does Reverse For Purchase Work?
Many people aren’t aware that you can buy a new home using a reverse mortgage, so it’s natural to have questions. We encourage you to involve your loved ones and trusted financial advisors in the conversation to learn all about this helpful and strategic home financing tool.
The Math is Simple
Reverse For Purchase works similarly to a reverse mortgage refinance. You’ll have access to a percentage of the home’s value based on a few factors:
• Age of the youngest homebuyer
• Current Interest Rates
• Home Value (appraised value or sale price)*
• Borrowing Factors set by HUD or the mortgage lender
For Example
A 68-year-old buyer using a reverse mortgage today could access roughly *45% of the home’s value to purchase a new property, and they would contribute the remaining amount. This percentage can change based on interest rate fluctuations and other factors.
The Benefit
The Reverse For Purchase program helps older Americans buy a more suitable retirement home while conserving cash and assets for future expenses.
*Interest rate fluctuations affect the percentage of available equity
Would a Reverse For Purchase be Right for You?
Retire in a Home You Love
Entering or in retirement, buying a new home might feel out of reach, but Reverse For Purchase was created to help people just like you! It’s designed to suit your needs and wants during this exciting chapter of life.
Enjoy Financial Flexibility
Keep More Cash
Have more funds available for retirement essentials like healthcare, travel, hobbies, family support, volunteering, and achieving long-awaited dreams.
Upsize Your Purchasing Power
Combine your investment with reverse mortgage loan proceeds to afford a home with better amenities or in a more desirable location.
Get the Home You’ve Always Wanted
Buying a new home for retirement doesn’t mean you have to compromise. Reverse For Purchase helps you find the perfect fit for your current and future plans – whether that’s living closer to family, decluttering, or upgrading your living space.
You’ve Got Options
Let’s Explore Your Home Buying Choices
All Cash Purchase
If you have the funds, you can buy a home outright and own it free and clear. However, this ties up your cash in home equity, making it less accessible for other needs.
Traditional Mortgage
If you qualify, you can make a minimum down payment and slowly build equity as you pay off the loan. But remember, this comes with mandatory monthly payments.
Reverse For Purchase
With this option, monthly mortgage payments are optional, boosting your buying power and helping you get the home you really want. It also allows you to keep more cash on hand for other retirement expenses.
But how can a mortgage not require monthly payments?
Here’s how Reverse For Purchase works
• Monthly principal and interest payments are optional and never required as long as you live in the property.
• Interest accrues on the loan balance, so it increases over time if you choose not to make monthly payments.
• Unlike a traditional mortgage, you build less equity, but you and your heirs are never at risk of owing more than the home’s value at the time of repayment. These loans are non-recourse, meaning there’s no personal liability – the home’s value at repayment is all that’s required to satisfy the loan.
You’re always in control.
Let’s look at examples
Scenario 1 - Downsizing
John is 68 and currently lives in a home worth $580,000. He has a $50,000 HELOC.
He wants to sell his house and buy a new home that is worth $400,000.
He sells his current home, and after taking care of selling costs associated in his state, along with paying off his $50,000 HELOC, he now has $489,400 remaining.
He can buy the new home worth $400,000 in cash if he wants, with $89,400 left for other needs.
However, if he used a Reverse Mortgage, he would get $136,833.50 toward the purchase and only have to contribute $263,166.50 for the $400,000 home. This leaves him with $226,233 in cash as opposed to the $89,400 he would have if he bought entirely with cash.
This increases his liquidity and available cash for other retirement needs. He will have the home he wants, no required mortgage payment, and over $136,335 more cash in hand!*
*Based on an interest rate of 6.25% and a margin of 2.5% and APR of 8.66%
Cash Purchase
$580,000 home
- $50,000 heloc - selling costs
= $489,400
- $400,000 new home
= $89,400 cash in hand
$580,000 home - $50,000 heloc - selling costs
+ $136,833 reverse = $626,233
- $400,000 new home
= $226,233 cash in hand
Reverse Mortgage Difference
$136,335 more cash in hand with Reverse Mortgage
Scenario 2 - Upsizing
Couple Michelle and Tony, aged 72 and 74, sell their $375,000 home that no longer meets their needs.
They net $348,000 to put toward a newer home with a master suite on the first floor AND is closer to family who have relocated.
The new home that they want to buy costs $500,000.
If they finance the home purchase with a reverse mortgage, they qualify for $180,878 toward the purchase after fees from the loan.
They need to contribute $319,121 from the sales proceeds of their old home to complete the $500,000 home purchase.
They still have $28,879 left from their old home sale to use for moving costs and some new furniture.
They now have their dream home nearer to their loved ones and have no monthly mortgage payment obligation.
*Based on an interest rate of 6.25% and a margin of 2.5% and APR of 8.63%
Current House Sale
$375,000 home - selling costs
= $348,000 cash in hand
Reverse Mortgage
- $500,000 new home + $180,878 reverse + $319,121 contribution = $28,879 cash in hand
Scenario 3 - Jumbo
Jerry is a pre-retiree at age 59.
He is buying a $1,800,000 home.
He has only $1.3 million to contribute and does NOT want a mortgage payment.
A Reverse Mortgage will give him $565,398 after all costs.
His contribution is $1,234,601.
He can keep $65,399 in cash, and still avoid having a mortgage payment.
Reverse Mortgage
- $1,800,000 home + $1,234,601 contribution + $565,398 reverse
= $65,399 cash in hand
*Based on a Fixed 8.99% interest rate, APR of 9.41%
Scenario 4 - Purchasing an Investment Home
64- and 68-year-old couple Joan and Robert want to purchase an $850,000 4-unit family home.
They will live in one unit as their primary residence.
Their buyer investment is $574,441.50. The Reverse Mortgage will subsidize the rest of the purchase price.
No monthly mortgage payment is required.
Rental income from the other three units equals $2,000-$4,000 a month (depending on location).
Reverse Mortgage
- $850,000 new home + $275,559 reverse + $574,441 contribution
Monthly Rental Income
+ $2,000-$4,000 depending on location
Scenario 5 - Purchasing a Second Home
Joey is 70 and has a $1.150 million home with no liens.
He wants to get a vacation home in Arizona so he can visit his brother often and play golf.
With a Proprietary Reverse he would be able to access $407,454 from his current primary residence.
This would give him the funds to buy a $400,000 condo close to his brother.
*Based on a fixed interest rate of 8.99% and APR of 10.03%
Proprietary Reverse
$1,150,000 home equity
$407,454 acessible through proprietary reverse
- $400,000 new condo
Scenario 6 - Purchasing After Divorce
One spouse stays in the home
One spouse remains in the marital home and obtains a reverse mortgage refinance to provide liquidity for the separating spouse. The departing spouse could use those funds, along with a Reverse Purchase, in the purchase of a new home.
Example
The current home is refinanced with a Reverse Refinance from NAF. Available proceeds are provided to the departing spouse.
The departing spouse uses the funds from the Refinance along with a Reverse Purchase for a new property.
Both parties can leverage the existing home’s equity, and neither will have to make mortgage payments during their retirement.
Both spouses leave the home
The spouses sell the property, splitting the proceeds. Each obtains a Reverse For Purchase for a new property. Each now has an ownership interest in their respective new home with no required monthly mortgage payments.
Example
Current home is sold.
Available proceeds are divided between parties. Each person can purchase a new home with a Reverse Purchase.
Both parties have financial pressures eased to buy a new home without having to liquidate other investments or assets.
Scenario 7 - Purchasing a New Construction
Julie and David, aged 66 and 68, want to travel more and reduce maintenance costs. They sell their current home and net $500,000 in proceeds. They want to buy a new construction property in a 55+ community for $725,000, avoiding a monthly mortgage payment.
Using a Reverse For Purchase, they would only need to invest $480,836.
The Reverse Loan finances the balance with no required monthly mortgage payments.
Reverse Mortgage
$500,000 current home sale
- $725,000 new construction + $244,164 reverse + $480,836 contribution = $19,164 cash in hand
*Based on an expected interest rate of 6.25% and margin of 2.5% and APR 8.13%
Here are the Next Steps
Your dedicated New American Funding Loan Officer is here to help! They’ll provide all the information you need about Reverse For Purchase, discuss your goals, and answer any questions you have.
We’ll ensure you’re well-qualified for this financing option. Your lender will review your credit history and perform a financial assessment to make sure you can comfortably afford ongoing homeowner obligations. Your loan officer will guide you through the process and advise you on required documents.
Speak with an independent, third-party reverse mortgage counselor approved by the US Department of Housing and Urban Development. They’ll ensure you understand all aspects of the loan and provide a completion certificate needed for your loan request
If you decide to move forward, you’ll complete and submit your application with some personal information. Your loan officer will guide you through this process and conduct a financial assessment.
The home you want to purchase will be appraised by an independent appraiser. The appraisal and loan application package will be reviewed and approved by an underwriter, ensuring all documentation is correct and complies with
After your loan application is approved, you’ll sign your closing documents with a title officer or attorney, depending on your state’s requirements. Then, it’s time to grab the keys to your new home and enjoy retirement!
We’re here to support you every step of the way!
Misconceptions Explained
There are still misconceptions out there about Reverse Mortgages even though the overseen program has been around since 1987, home purchase use since 2008.
Myth #1:
The bank will take my home away from me.
Fact This is a non-recourse loan. You retain ownership of the home with your name on the title under a HECM. You must keep up with property taxes and maintenance, homeowners’ insurance, and HOA assessments.
Myth #2:
I won’t be able to qualify because I already have a mortgage.
Fact With a HECM, proceeds first clear any existing mortgage, removing that monthly cost, and no monthly mortgage payments are required thereafter.
Myth #3:
My heirs won’t inherit the home.
Fact Like any other mortgage, your heirs can inherit the home. They have three options when the loan balance comes due:
1. They can choose to finance the loan balance and retain the home
2. Sell it and keep the surplus
3. Forfeit the home to the lender
Myth #4:
Reverse mortgages take advantage of retirees.
Fact On the contrary, a HECM is designed to assist retirees. By leveraging home equity for income, it enables retirees to remain in their homes with greater financial freedom and security. Additionally, robust state and federal regulations safeguard borrowers.
Myth #5:
A HECM should only be used as a last resort.
Fact Also contrary to belief, reverse mortgages are now safer and more adaptable due to recent improvements. They serve as a strategic reserve for future needs and are recommended by financial advisors as integral to comprehensive retirement planning.
But wait, there’s more: Safeguards
The following are safeguards that accompany reverse mortgages whether refinancing an existing primary residence or buying a new home:
Reverse Mortgage Counseling
Before getting a reverse mortgage, you must meet with a HUDapproved, third-party counselor. This session is designed to:
• Provide an unbiased view of reverse mortgage pros and cons for your situation.
• Educate you about the process and offer resources for an informed decision.
• Explore alternative financial solutions that may suit your needs.
• Answer any remaining questions about the loan.
Non-recourse Loan
You or your heirs won’t pay the lender more than your home’s value at repayment time. The lender can’t pursue other assets for repayment.
FHA Insured
If the loan balance exceeds the home’s value, the FHA covers the difference using the mortgage insurance premium (MIP) you’ve paid.
Unlock Your Home’s Potential with NAF
Your Trusted Reverse Mortgage Partner
Choose New American Funding’s Reverse Mortgage Division, a leader in reverse mortgage opportunities, known for exceptional customer service.
Empower Your Financial Future
We understand that financial decisions are crucial. That’s why we’re dedicated to responsibly helping homeowners like you reshape your financial future.
Unlock Your Home Equity
Let us guide you in using your hard-earned home equity to address the financial challenges that many older adults face. Together, we can explore how a reverse mortgage can help you unlock the power of your home.
We’re here to support you every step of the way. Let’s make your retirement dreams a reality!
