If you are planning on moving at some point in the future, you may want to seriously consider utilizing a reverse mortgage to purchase your new home. There are 5 major financial benefits to using a reverse mortgage to finance your new home purchase.
Facts About Seniors Buying Homes
More than 40% of Americans age 50 to 64 plan to move within the next 5 years.
46% of boomers that are planning to move want to up-size, and 54% want to downsize.
Taxes, insurance, upkeep and utility bills typically run about 3.25% of the value of a house, per a report by the Center for Retirement Research at Boston College. Theoretically, you’ll spend less on those items if you trade down to a house that costs less.
5 Reasons To Consider Purchasing A Home With A Reverse Mortgage
Increased Purchasing Power
Imagine you are a cash buyer with $200,000 for a new home. Without getting a mortgage, you are stuck in that $200,000 price range. You may or may not find what you want in that price range. You might end up having to “settle” for whatever you can find that you can afford.
With a reverse mortgage you could potentially double (or more) your purchasing power. In other words, your $200,000 price range could now be at $400,000 or more, depending on your age and interest rates. This could open a whole new world of housing options to you. You now have a better chance of finding your dream home. And you still do not have a monthly mortgage payment.
Retain Cash From the Sale of Your Home
Imagine you just sold your home and you netted $200,000. You and your spouse have decided that downsizing is a smart move. You have found that perfect home in an area you have always wanted to live. Even better is that the asking price is $200,000, the exact amount you got from the sale of your home.
At this point you have two options; pay cash or look at using a reverse mortgage.
If you pay cash, all of your $200,000 will be tied up in the home’s equity.
If you used a reverse mortgage, you would not need to pay all cash and you would still not have a mortgage payment. You could keep the remaining cash and put it into the bank, invest it, vacation more or do anything else you want to do with that cash.
Retain Retirement Assets
Imagine you just sold your home and netted $150,000. You and your spouse have decided that you want to move to a “nicer” neighborhood where the average home sells for $300,000.
Your budget does not allow for a monthly mortgage payment, nor do you want a monthly mortgage payment. You decide to pull $150,000 from your retirement accounts to make buying your home a reality.
There are several things that need to be considered with this decision:
- There may be tax consequences to withdrawing those funds. If there are tax consequences, you may need to pull out significantly more in order to net the $150,000 that you need to purchase your new home.
- You are now tying up liquid retirement assets into an illiquid asset.
- You are missing out on potential growth had you left your investment in place. A $150,000 investment, even with low single digit growth, can see a healthy return over a 10 year period.
- Taking those funds out of a retirement account could have a massive impact on the monthly income you would receive during your retirement.
If you used the HECM for Purchase program you might be able to maintain all or most of those retirement funds in play and continue to let them grow. Plus, you could still potentially buy that $300,000 home and not have a monthly mortgage payment.
Moving Can Become A Reality
Seniors can feel “trapped” in their homes because they think they cannot afford to move. They may want to move but can’t figure out how to make it work for them. There are all kinds of scenarios for this.
Imagine wanting to move to be closer to your family and your grandchildren. Unfortunately, the part of the state where your family lives, the real estate prices are way above what you are used to. You can’t afford the mortgage payment it would take to buy a house there. You feel trapped.
Let’s assume that in order to get to your family, you are going to need to spend about $400,000 in order to buy a house near them. Buying a home near your family could be a reality with help from the HECM for Purchase mortgage.
Free Up Monthly Cash Flow
Imagine that you have decided to buy your dream house on the beautiful Oregon coast. Even though you netted a significant amount from the sale of your home, the house you want to buy is still going to require you to get a loan. Your loan officer at the bank tells you that a traditional 30-year fixed mortgage is the right way to go about buying your dream home. Based on the interest rates at the time and the loan amount, your monthly payment is $850, which does not include taxes or insurance.
That $850 monthly mortgage payment is a stretch financially, but you decide that it is worth it to buy your dream home on the coast. Unfortunately, that payment has you strapped and unable to do more during your retirement other than watch the tide come in and go out.
Had you looked into the HECM for Purchase program, not only would you have not had a monthly mortgage payment, allowing you to do more fun things to enjoy your retirement in full, but you might have been able to retain more cash from the sale of your home. In this scenario do you think you would enjoy your retirement a little bit more with an extra $850 a month in your pocket?