Using a reverse mortgage

Using a reverse mortgage to purchase a new home is possible, but there are several important factors to consider:

1. Eligibility: You must be at least 62 years old and own a significant amount of equity in your current home to qualify for a reverse mortgage.
2. Loan Amount: The amount you can borrow through a reverse mortgage is based on factors like your age, the appraised value of the new home, current interest rates, and the loan limit set by the Federal Housing Administration (FHA).
3. Down Payment: Typically, you’ll need to make a down payment from the sale proceeds of your current home or from other assets to cover the difference between the reverse mortgage loan amount and the purchase price of the new home.
4. Loan Repayment: With a reverse mortgage, you don’t make monthly mortgage payments. Instead, the loan balance grows over time with interest. The loan is typically repaid when you sell the home, move out permanently, or pass away.
5. Financial Responsibilities: You are still responsible for property taxes, homeowners insurance, and maintenance costs for the new home. Failure to meet these obligations could lead to foreclosure.
6. Loan Costs: Reverse mortgages often have higher fees and closing costs compared to traditional mortgages. It’s essential to understand these costs and how they will affect your finances.
7. Impact on Heirs: Using a reverse mortgage to purchase a new home can reduce the equity available to your heirs unless they choose to repay the loan and keep the property.

Before proceeding with a reverse mortgage to buy a new home, it’s crucial to consult with a financial advisor or a HUD-approved housing counselor to understand the implications, costs, and alternatives available to you.