Can Seniors Use a Reverse Mortgage to Buy a New Home

A senior age 62 or older can buy a new home with a Home Equity Conversion Mortgage, or HECM. The program combines the purchase and the loan in one step. The borrower pays one set of closing costs instead of two. A reverse mortgage in Dallas follows the same HECM rules as any other.

The Housing and Economic Recovery Act of 2008 created the program. It became available on January 1, 2009. Before it, a senior paid two sets of closing costs to buy a home and get a reverse mortgage. The loan has no regular monthly repayments.

How Does a HECM for Purchase Work?

At closing, the borrower makes a monetary investment. This amount covers the gap between the principal limit and the sales price. Funds come from the sale of a past home, savings, or retirement accounts.

A larger investment leaves part of the proceeds for future draws. A borrower can receive 40% to 70% of the appraised value, depending on age and interest rate. A reverse mortgage advisor explains this investment before the application starts.

What Are the Borrower and Property Requirements?

The property must be the principal residence. The borrower must move in within 60 days of closing. The program covers existing homes with one to four units.

New construction needs a certificate of occupancy by the date FHA insures the loan. After closing, the loan allows no other liens. The lender holds first position, and HUD holds a silent second. HUD-approved housing counseling agencies must counsel each senior who uses this option.

• Ineligible properties: Cooperative units, bed and breakfast properties, and boarding houses.

• Special case: Manufactured homes qualify in certain circumstances.

• Allowable funds: Own money, asset sale proceeds, savings, and retirement withdrawals.

• Ineligible funds: Seller contributions, credit card advances, bridge loans, and loans against a car or home equity.

The same occupancy and lien rules apply to every Dallas reverse mortgage used for a purchase. The lender checks the source of all funds before closing. Large deposits or new accounts need a clear reason.

What Happens Before and During Closing?

HUD encourages a home inspection by a licensed inspector. The program does not require one. The inspection reviews the structure, construction, and mechanical systems. It estimates the remaining useful life of major components. The borrower should attend the inspection to learn about upkeep.

• Closing costs: Standard HECM costs plus recordation fees and transfer taxes.

• Right of rescission: The three-day period does not apply.

• Seller concessions: These do not apply to reverse mortgages.

• Offer terms: The offer must depend on a good inspection result.

Repairs for health, safety, or building issues must finish before closing. These repairs belong in the purchase agreement, and the seller completes them. The borrower cannot pay for repairs before owning the home. A borrower with repair questions can call a reverse mortgage advisor at any time.

What Responsibilities Continue After Closing?

The borrower owns the home, not the mortgage company. The borrower must pay property taxes and insurance. The borrower must keep the property in good repair to meet HUD standards. Missing these duties risks default.

The borrower can repay the loan at any time with no prepayment penalty. Selling the home is another way to repay the loan. Some events cause the loan to mature, and the balance becomes due.

What Rules Prevent Property Flipping?

Only current owners of record can sell a property financed with an FHA-insured loan. A resale within 90 days of the last sale does not qualify. A resale between 91 and 180 days at a higher price needs added proof of the property’s value.

Final Thought

A senior who reviews reverse mortgage options in Dallas can buy a new home with a HECM for Purchase. The funds, property, and occupancy must meet HUD rules. The program removes the second set of closing costs. It requires a monetary investment at closing.

GFS Home Loans operates under Right Start Mortgage, Inc. It serves seniors from its office in Plano, Texas. Ken Andreas, the Reverse Mortgage Manager, has over 15 years of experience. He meets clients at their homes 95% of the time. The company provides objective information on HECM loans, including the HECM for Purchase. Clients can reach him by phone during business hours, nights, and weekends.