How Reverse Mortgages Work When Purchasing a Home

By Nathan Johnson

Since 1989 many senior homeowners across America have become increasingly comfortable with thinking about the reverse mortgage as a viable option for their retirement needs. On January 1, 2009 FHA/HUD released the reverse mortgage for purchasing a home to help seniors who find themselves in need of a home that is a better fit for their retirement needs. My goal is to inform you about the reverse mortgage for home purchase, when it might be a good idea to look into one, and then clear up any commonly held misconceptions.

The reverse mortgage for home purchase is an FHA/HUD insured home loan designed to help seniors purchase a home that is more suitable for those golden years. The estimated reverse mortgage proceeds available for the purchase of their new primary residence is dependant on age, actual appraised value of the home, current interest rates and the amount of down payment available for the transaction. The youngest borrower must be at least 62 years old and the older one is the more reverse mortgage purchase cash is available. The appraisal is done by a licensed FHA appraiser and the property type can be a single family residence, townhouse, approved FHA condo or a manufactured/modular home. Interest rates can be either adjustable or fixed.

Why would a senior use a reverse mortgage for home purchase?

In some cases the profit from the sale of the current home is inadequate to pay cash for the home they wish to purchase. Perhaps for financial reasons they need to retain some of the proceeds from the sale of the home to help supplement their retirement income. Qualifying for a traditional mortgage may not be an option as income may be fixed or inadequate to make monthly payments.

It is also safe to say that even if they can qualify for a mortgage the last thing they want is another mortgage payment. Remember, with any reverse mortgage, there is never a monthly mortgage payment.

Example: Ms Smith, 70 years old, owns a home free and clear that is worth $150,000. After paying some closing costs to the buyers, realtor fees, etc. she clears about $135,000. All the homes she is interested in that will meet her health and social needs are about $200,000. Normally she might look at using her equity of $135,000 and getting a loan for $65,000 which requires $500 monthly mortgage payments. The only problem is that Ms Smith receives only $1,200 a month from social security making her budget for total living expenses like food, prescription drugs, and transportation a tight fit. She wants to work to stay active but not to make ends meet.

So Ms Smith looks into a reverse mortgage to purchase a home priced at $200,000. The reverse mortgage proceeds available for the purchase are $120,000 and she brings $80,000 from the sale of her home. She moves into her new home with no mortgage payments and keeps $55,000 for any future expenses. She now can have greater peace of mind knowing that she is prepared well to enjoy her golden years!

Now let’s clear up some common misconceptions that seniors may have about reverse mortgages. You never forfeit the title to your home and you retain all the rights as the homeowner. As long as one borrower occupies the home as the primary residence, keep current on taxes and homeowners insurance, and keep the property in good repair you cannot be required to leave or sell the home. You and/or your heirs can never be held personally liable for more than the value of your home at the time of sale. Proceeds from a reverse mortgage are not taxable.

Education is crucial to understanding all the benefits of securing a reverse mortgage. I offer a FREE consultation at your home or at my office, whichever is most convenient for you. I would also be happy to send you FREE of charge with no obligation, information packet about both reverse mortgage programs. Please contact me on my direct line 719-243-4299 or toll free at 877-217-0166 or email me at

Sometimes the best way to relocate is in reverse. It’s all about peace of mind.

Nathan Johnson, Colorado’s Reverse Mortgage Specialist for 8 years, lives in Colorado Springs, serving the entire Front Range. 1st Reverse Mortgage USA is one of the top companies in the southwest, specializing in just reverse mortgages, and is a HUD Direct Lender.