Using a HECM Reverse Mortgage to Purchase a House Without a Monthly Payment, Without Paying All-Cash

April 17, 2015

The major issues connected to purchasing a house with a HECM reverse mortgage are discussed in Should Seniors Buying a House Do It With a HECM Reverse Mortgage?  This article is more narrowly focused. It is about using my HECM reverse mortgage calculator to guide such a purchase. The calculator will show how much cash you can draw on the reverse mortgage, and how much you will need to raise from other sources. In addition, the calculator shows the implications of any selection for your future finances, and guides your selection of the lender offering the best deal.

Step 1: Enter Information About You and Your House

You begin by entering the information requested. Make sure that the first line shows your purpose to be the purchase of a house. The accuracy of the calculator results depends upon the accuracy of the information you enter. If you have a question about any of the entries, place your cursor over the question mark. If you still have a question, contact me.

When finished, click on “Continue to Step 2”.

Step 2: Select the Type of Reverse Mortgage

The top two lines at Step 2 shows the amount you can draw on the HECM to apply to the purchase, and the amount you will have to raise from other sources. You can finance the purchase with either an adjustable rate or a fixed-rate HECM, and in some cases you will also have a choice between a low and a high upfront mortgage insurance premium. (Note: The upfront mortgage insurance premium set by FHA is ½% of property value if the initial loan amount, which includes financed settlement costs plus cash draws for the house purchase, is no more than 60% of total borrowing power. Above 60%, the premium is 2.5% of property value).

 To help guide your selection, Step 2 shows the financial cost of the purchase over the period you expect to have the house. This cost is the sum of the HECM mortgage balance plus the cost of the funds raised elsewhere at the interest rate you entered at Step 1.

Click on a "Select Adjustable Rate" or a "Select Fixed Rate" button at the bottom.

Step 3: Select Lender and Price

The loan providers who post their prices on this site understand that their prices are being compared to others, which means that their prices must be competitive if they hope to be selected. Furthermore, the loan providers listed have all been certified by the professor, which means among other things that they are being monitored to prevent any unjustified last-minute price increases.

Nonetheless, the decision may not be easy. The choices offered to you here may differ by 1) Lender, 2) Interest rate, 3) Origination fee, 4) Credit line, 5) Future Loan Balance and 6) Future Credit Line. Of these, the last two are the most important. In the polar case where the period is relatively short, say 5 years or so, and the borrower expects to sell the house at that time, the HECM selected should be the one that will have the smallest loan balance at the end of the period. In the polar case where the period is relatively long, say 15 years or more, and the borrower expects to stay as long as  possible and has no interest in leaving an estate, the HECM should be selected that provides the largest future credit line. Borrowers who fall between these polar cases will be concerned with both future debt and future credit lines.

When you have made your decision, click on “Select’, which allows you to send your information to the selected lender – and only that lender – with an invitation to contact you.



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