Many homeowners are aware that they can access the equity that they have in their home through a Reverse Mortgage. The Reverse Mortgage, a Federal Housing Administration (FHA) insured loan, allows senior homeowners to take out a loan based on the amount of equity that they have in their home. In general, borrowers continue to live in their home, one of the terms of the Home Equity Conversion Mortgage (HECM) loan guidelines. These guidelines specifically states that HECM borrowers can maintain their residence in their home until they either die or relocate, at which time the ownership of the house reverts to the lending institution. The lending institution then sells the house to recoup the initial investment.
Today a new Reverse Mortgage alternative allows borrowers to use the proceeds from a HECM loan to buy a new home. The HECM for Purchase opens up opportunities for retirees who want to move closer to their children or other family members, wish to move to a retirement community or want to relocate for any reason. The HECM for Purchase product was issued by the Federal Housing Administration and allows borrowers to complete the paperwork for both transactions ? taking out a Reverse Mortgage and purchasing a new home ? with one single transaction.
To be considered eligible for a HECM for Purchase an individual must be 62 years or older and demonstrate that they hold enough equity in their home to qualify for the loan.
When using the HCCM for Purchase program borrowers can buy a new home according to the loan?s guidelines while conforming to the loan?s procedures and ?restrictions.
The HECM for Purchase can be used for the purchase of a newly constructed property or an existing property, either a single family home or a HUD approved condominium. A newly-built property must have a Certificate of Occupancy to prove that it meets HUD standards of habitability.
The borrower must use the proceeds from the Reverse Mortgage to complete payments on any existing mortgage and also to pay the down payment on the new home. In addition, the HECM for Purchase includes added loan costs which must be paid immediately. These costs include the loan?s origination fee, servicing fees, the mortgage insurance premium and third party charges (for inspections, an appraisal, recording fees, title search, etc.
After those obligations are satisfied the borrower may draw the remainder of the loan as a lump sum, in tenure or term payments or as a line of credit, according to the borrower?s preference. The borrower is required to maintain the new home including maintaining payments on homeowners insurance, the loan?s insurance, property taxes and home upkeep.
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