Downsize by purchasing with a reverse mortgage

Our previous post discussed buying a dream home with a reverse mortgage. Many seniors, rather than wanting a dream house, are more interested in finding a smaller, one-story home that is easier to maneuver and live more comfortably and safely. A reverse mortgage might be just the answer for downsizing as well! And at the same time, you could also eliminate the monthly payments you might now must pay with a regular mortgage.

If you choose to use a Home Equity Conversion Mortgage (HECM) for this purchase, you can eliminate your monthly mortgage payments. This can be accomplished by generating the funds from the sale of your current home to pay for the larger down payment that is required by the HECM for Purchase transaction.
This all sounds great, but there are some drawbacks when using a reverse mortgage to purchase a new home:

• A large down payment is required (depending on age and property value, as much as 50% of the new home's value).
• The down payment must meet the loan to value ratio.
• You may not have other loans against your home (2nd mortgage, home equity).
• Possibly affect needs-based Medicaid and other programs.
• Recommended only if you plan to stay in this house more than 5 years.

Before choosing this funding option, be sure to discuss it with your financial planner and estate planner as well as your family. And once the decision is made, contact a reputable, trustworthy mortgage broker to assist you.