Guide for Realtors: Purchasing a House by Using a Reverse Mortgage

“Wow, I just learned that you can buy a house with a reverse mortgage, and I am absolutely thrilled! This is a game-changer for my senior clients who are looking to purchase a new home. The ability to tap into their home equity without the burden of monthly mortgage payments provides a fantastic opportunity for them. It's incredible to think that they can retain ownership of the property while accessing the funds they need. As a realtor, I am excited to share this information with my clients and help guide them through the process of utilizing a reverse mortgage to purchase their dream home. This knowledge expands my expertise and allows me to offer a comprehensive range of options to meet the unique needs of my senior clientele. I can't wait to empower my clients with this knowledge and witness the positive impact it has on their homebuying journey!”

Are you a realtor looking to identify opportunities and provide knowledgeable guidance to support the needs of your clientele as an industry expert?

If you're a realtor, then of course you are! Well, did you know that your senior clients can purchase a new home using a reverse mortgage?

Senior home buyers have unique requirements, and a reverse mortgage may be a viable solution for those seeking to downsize, relocate, and access their home equity without having to make monthly mortgage payments afterwards. Realtors are trusted advisors for their clients, and being well-versed in the reverse mortgage process allows them to provide accurate information and guidance to seniors considering this option. Real estate agents who understand reverse mortgages can align their clients' needs with appropriate properties and financing options, providing a comprehensive service that meets their goals and circumstances. By having an overall knowledge of reverse mortgages and their role in home purchases, realtors enhance their expertise, professionalism, and credibility in the real estate market.

This article is here to provide a step-by-step comprehensive understanding of how a house can be purchased using a reverse mortgage. This knowledge should open up new opportunities for realtors to assist senior buyers by being up-to-date with industry trends and financing options.

“Sounds great! But how does it work?”

I present: A Realtor’s Guide to Purchasing a House by Using a Reverse Mortgage.

The following information is based on the FHA backed – gold standard reverse mortgage product, known as the Home Equity Conversion Mortgage (HECM):

Step 1: Basic Understanding of a Reverse Mortgage

• A reverse mortgage is a loan available to homeowners aged 62 or older.

• Homeowners can convert a portion of their home equity into cash without selling the property while retaining the title to their house.

• Upon utilizing this loan, a portion of the home equity is used to pay the remaining balance on the mortgage of the property.

  • By using home equity to pay off the remaining mortgage balance the homeowner will not make any monthly mortgage payments for the duration of their time living there.

• Repayment of the loan is typically deferred until the homeowner sells the property, moves out, or passes away.

The reverse mortgage is a tool to access a portion of home equity, the amount available being based on the age of the youngest homeowner and the equity in the house. The repayment of the reverse mortgage is delayed until the last of the homeowners leaves the property.

Step 2: Reverse Mortgage Loan

• Through a reverse mortgage broker, the buyer applies for a reverse mortgage loan with a lender who specializes in providing such loans.

• The lender evaluates the buyer's eligibility based on factors such as age, home value, current interest rates, as well as ability to maintain property taxes and homeowners insurance payments.

Step 3: Loan Amount Determination

• The loan amount available from a reverse mortgage is known as the principal limit, this is the portion of equity the homeowner is able to access.

• The principal limit amount is determined by the lender and is the maximum loan amount the buyer can receive based on their age and the amount of home equity.

• The buyer must have an ample quantity of home equity to be eligible for a reverse mortgage.

• In the case of purchasing a house with a reverse mortgage, the equity available to draw from is created in the form of a down payment on the purchase property. Think of the down payment as instant equity.

  • This down payment is typically derived from the sale of their current home.

  • The larger the down payment the more equity in the house.

  • The down payment size needed depends on factors such as the buyer's age, the appraised value of the new home, and the loan-to-value ratio required by the reverse mortgage lender.

• The older the borrower, the larger percentage of their equity they can access therefore needing less of a down payment.

Step 4: Reverse Mortgage Proceeds:

• The primary portion of the funds from the reverse mortgage loan are used to cover the remaining purchase transaction of the home.

  • This pays off the purchase of the home – thereafter, the homeowner will never make a monthly mortgage payment on their newly purchased house.

    • Furthermore, this leaves the homeowner with any leftover proceeds from the sale of their previous house, as well as any supplemental income from retirement benefits and Social Security to be directed where they desire.

• Any remaining funds from the principal limit are left in an open line of credit that continually grows at the current interest rate of the loan.

  • The borrower can access this tax free line of credit at any time and use it for any purpose.

Step 6: Ownership and Repayment:

• Upon purchasing the new home using a reverse mortgage, the buyer retains ownership of the property.

• No monthly mortgage payments are required as long as the buyer resides in the home as their primary residence.

• The reverse mortgage loan will be repaid when the homeowner sells the property, moves out, or passes away.

  • At that time, the loan balance, including accrued interest and fees, is typically paid off from the sale proceeds of the home. *(Heirs have the option to refinance the reverse mortgage into a traditional forward mortgage and pay the loan balance off).

  • If the loan balance is more than the sale price of the home, the insurance feature of the loan covers the difference.

    • The homeowners and their heirs are not responsible for the shortfall. The home is the only thing responsible for paying the loan back.

Who is a good candidate for this product?

• Senior homeowners looking to right size into a new house while maximizing the proceeds left over from the sale of their previous home – in tandem also freeing up any supplemental income like social security and retirement benefits.

• Seniors looking to relocate into a housing market that appears out of their budget.

  • Remember, the buyer is paying a portion of the asking price and the reverse mortgage covers the remaining balance.

In basic terms, senior homeowners can make a sizeable down payment on the purchase of a house, then cover the remaining balance of the acquisition by using a reverse mortgage. By using a reverse mortgage to complete the purchase transaction of buying a house they are free and clear of making monthly mortgage payments for the duration of their time living there. This alleviation of monthly payments could be for 15 years or even more! Should they leave their house permanently, the only thing responsible for paying the loan back is the sale of the house itself. Nothing more. Imagine owning a newly purchased house for a fraction of the asking price. Living there for 15 years or even longer without making a single monthly payment on it, and when it comes time to leave all you’re responsible to do is… move out.

If you have any questions, please reach out to us using the “contact us” field below. We love building awareness on this life changing loan product.