Seniors over the age of 62 can take advantage of the Federal Housing Administration’s (FHA) Home Equity Conversion Mortgage (HECM) program to purchase a new home. This program uses a reverse mortgage to pay for the property. Implemented in 2009, HECM was created to address the fact that many were using a more expensive and complicated method to use a reverse mortgage to buy property: they would first obtain a standard mortgage loan to buy a property, then pay off that mortgage with a reverse mortgage. HECM is a more affordable and easier way of doing this.
A senior who qualifies for a HECM will be able to use this reverse mortgage to cover a portion of the new home’s cost, but they would need to use other assets to cover the remaining cost. These funds could come from savings, cashing out bonds, or selling their current residence. The only restriction is that the remaining cost cannot be covered via any other type of loan or other debt.
Once the purchase is complete, the senior owns their home but does not have to repay the mortgage on it until they no longer use the property as their primary residence. They may sell the home at any point and use the income from the sell to pay off the remaining balance or, if the loan ever exceeds the total value of the property, simply turn over the property to the mortgage company.
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