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Purchase a House While Limiting Depletion of Assets
Purchase a House While Limiting Depletion of Assets

A senior who is not now a homeowner, or who wants to sell an existing home and purchase another one, perhaps smaller or located closer to family. can partially finance the purchase with a HECM. Taking the largest cash draw possible minimizes the depletion of financial assets.

Purchasing a house with a HECM has significant advantages over buying it with a standard mortgage. The standard mortgage must be repaid in monthly installments while the HECM reverse mortgage doesn’t have to be repaid until the senior dies or moves out of the house permanently. In addition, the senior might not meet the income and/or credit requirements for a standard mortgage, but these are not a barrier to a reverse mortgage.

Buying a house with a HECM also beats the alternative of buying with a forward mortgage and paying it off later with a HECM. The advantage is that it requires only one set of settlement costs instead of two.

The down side, and it is a big one, is that the senior who uses all the borrowing power of a HECM to buy a house loses the ability to draw spendable cash from a HECM in later years.

This is a lifestyle decision that may be well-considered and sound, or it may be hasty and ill-conceived. The best way to avoid a bad decision is not to act in haste, and consult those who play a role in the plan. It is a particularly bad idea to move in order to be closer to family without first discussing it with them. They could be planning a move of their own!

Given a decision to buy a house, using a HECM for that purpose beats the alternative of buying with a forward mortgage and paying it off later with a HECM. The advantage is that it requires only one set of settlement costs instead of two. But the downside is the same as that associated with using a HECM to pay off a large balance on a forward mortgage. In both cases, the HECM is not available to ease financial burdens in future years.