Can I build a new home with a senior reverse mortgage? This is a question that many older Americans usually ask. The answer is yes; you can build a new home through a reverse mortgage. Although unknown to many people, reverse mortgages allow you to build a new home. Those seeking to build a new home must specifically apply for a reverse mortgage known as HECM for purchase. This is the only reverse mortgage that currently allows a purchase of a new home in the whole of America. What is HECM? HECM stands for Home Equity Conversion Mortgage. It is a mortgage product of the Federal Housing Administration (FHA). FHA designed it 2006 in a bid to help older Americans own homes. HECM allows you to own a new home by putting a senior reverse mortgage on it. It has since helped many senior American citizens become homeowners.
Applying for a HECM for a purchase loan. If you wish to own a brand new home through a reverse mortgage, you will need to apply for a HECM for a purchase loan. Financial institutions only offer HECM loans to eligible persons. The eligibility criteria for this kind of mortgage is as follows:
1. You must be an American citizen
2. You must be aged 62 and above.
3. You must be the outright owner of the home you’re living in (your first home).
4. Your home should be your permanent residence.
5. You should be in a position to pay home insurance, homeowners taxes, as well as other dues for your current home.
Things to keep in mind about building a new home using reverse mortgage:
1. The reverse mortgage is not going to finance your entire home construction. It may only meet 60-70% of the cost leaving you to find the rest.
2. The mortgage lenders will retain a significant security in your new home. The home will, however, be titled in your new home.
3. You will lose key amounts of equity on your new home. You or your heirs will only get what is left after paying off the reverse mortgage.
In spite of the three outcomes above, you shouldn’t be reluctant about taking a reverse mortgage to build a new home. A reverse mortgage helps prevent you from breaking the bank or draining all your retirement savings. You will get to own a new home without much sweat and tears. It’s understandable why you as a senior citizen might want to own another home. It may be a need to change locations or even a desire to move closer to your family members. Whatever your reason, just try your best to obtain a suitable mortgage for its construction.
An overview of reverse mortgages
Reverse mortgages are a particular type of mortgage. They allow homeowners to cash in on their home’s equities. In the case of reverse mortgages, the lender gives a homeowner a loan so they don’t have to make monthly payments. Payment of the mortgage is only made when a homeowner dies, sells the house, or moves out. Reverse mortgages, therefore, differ from other mortgages which require monthly payments until their clearance.