Inside the HECM Reverse Mortgage for Purchase Process

A Home Equity Conversion Mortgage (HECM) reverse mortgage for purchase is a relatively new tool that allows borrowers to buy a new home with a reverse mortgage loan.

The process is similar to a traditional, forward mortgage to purchase a new home. The borrower still needs to work with a real estate agent on the transaction, and many of the same closing costs and timeframes apply.

During the reverse mortgage loan approval process, the borrower must go through a financial assessment to determine whether they will qualify for the reverse mortgage for purchase. Expect to provide income documentation, asset documentation, and documentation that will show lenders you have paid your property taxes on your current home in a timely manner during this part of the process.

Using a Reverse Mortgage for Purchase

Borrowers must work with a licensed reverse mortgage loan officer in completing the reverse mortgage process. It is okay for the borrower to contact the loan officer or the realtor first, but it’s advised to start early on the process.

All reverse mortgage borrowers must participate in reverse mortgage counseling. Be advised that sometimes this can take time to schedule and complete. Some states have a waiting period between counseling and loan closing that can add time to the process.

Down Payment and Funding Sources

In a reverse mortgage for purchase transaction, the down payment comprises equity from the borrower’s previous home sale, as well as any necessary cash to complete the transaction. Please be advised:

• The borrower may only use their own money or money obtained from the sale of a previous home.
• Withdrawal from borrower’s savings or money gifted to them by a family member is acceptable.
• Borrowed money in the form of bank financing or borrowed from a family member is not permissible.
• Borrowing against an asset such as a CD or life insurance policy is not permitted.
• Lenders are required to verify the source of funds.

What Are Seller Concessions?

Seller concessions include specific fees and expenses associated with the closing costs of a property sale. These concessions are currently not permitted for reverse mortgage for purchase loans. This is a major difference for homeowners who have gone through the forward loan process and have negotiated with the seller on certain aspects of the home for sale.

This article is intended for general informational and educational purposes only, and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.