By Brent Ross • 15 Mar, 2023
As people age, their housing needs often change. They may want to downsize, move closer to family, or live in a more accessible home. However, for many seniors, the thought of uprooting their lives and moving to a new home can be overwhelming. That’s where a reverse 4 purchase loan comes in. Reverse 4 purchase loans are a unique type of loan that allows seniors to purchase a new home without making monthly mortgage payments*. *The borrower is responsible to keep the property charges like taxes, insurance and HOA fees current, and they must maintain the home and live in it as their primary residence. The loan is paid off when the borrower sells the home, moves out permanently, or passes away. Let’s explore how reverse 4 purchase loans work and some scenarios where they can be beneficial. How Does a Reverse 4 Purchase Loan Work? A reverse 4 purchase loan is a reverse mortgage, many times the FHA HECM loan, and is used to purchase the new home. The borrower must be at least 62 years old and have enough equity coming from the sale of their current home to cover the down payment and closing costs. The borrower will not be required to make any monthly mortgage payments (principal and interest). Instead, interest and mortgage insurance on the loan will accrue and be added to the balance of the loan each month. When the borrower sells the home, moves out permanently, or passes away, the loan is paid off with the proceeds from the sale of the home, or the heirs can bring in funds to pay off the loan. One of the benefits of a reverse 4 purchase loan is that it allows seniors to purchase a new home without depleting their savings. Instead, they can use the equity from the sale of their current home to fund the down payment and closing costs. Scenario 1: Downsizing for Retirement Mary is 70 years old and has lived in her 4-bedroom home for over 30 years. Her husband passed away five years ago, and she is finding it difficult to maintain the large home on her own. She would like to downsize to a smaller, more manageable home but does not want to deplete her savings to purchase a new home. Mary decides to apply for a reverse 4 purchase loan. She has enough net equity in her current home to cover the down payment and closing costs on a new home. She sells her current home and purchases a smaller, one-story home with a reverse 4 purchase loan, and she no longer has to worry about the upkeep and maintenance of a large home. She can live comfortably in her new home without making any monthly mortgage payments*. Scenario 2: Moving Closer to Family John is 75 years old and has lived in his current home for over 40 years. His children and grandchildren live on the other side of the country, and he would like to move closer to them. However, he does not want to sell his current home and lose the memories he has created there. John decides to apply for a reverse 4 purchase loan. He has enough assets to cover the down payment and closing costs on a new home near his family. He purchases a new home with a reverse 4 purchase loan and can live closer to his loved ones without losing his current home, which can be a second home or rental property for him. When he passes away, his family can sell both homes and use the proceeds to divide his estate. Scenario 3: Purchasing a Multi-Family Property David is 65 years old and owns his own home outright. His mother, Susan, is 85 years old and owns her home outright. Susan is finding it difficult to maintain her home on her own and would like to move in with David. However, David’s home is not big enough to accommodate both of them comfortably. David decides to apply for a reverse 4 purchase loan to purchase a fourplex. He uses the equity from the sale of his home to finance the down payment and closing costs on the fourplex. He lives in one unit of the 4-plex and his mother lives in another unit of the fourplex, and the other two units are rented out to generate income. With the rental income from the other units in the 4-plex, and rental income from his mom’s prior home, his mother can live with him in a comfortable home, and they are both able to enjoy the benefits of the rental income. This scenario highlights the flexibility of a reverse 4 purchase loan. Instead of using the loan to purchase a single-family home, it can be used to purchase a multi-family property that can generate income and provide additional benefits to the borrower. Final Thoughts Reverse 4 purchase loans can be a great option for seniors who want to purchase a new home without depleting their savings or making monthly mortgage payments. These loans provide flexibility and allow seniors to live comfortably in a home that meets their needs. If you are considering a reverse 4 purchase loan, it’s important to do your research and work with a reputable lender. At Big Valley Mortgage, we have a team of experienced mortgage professionals who can help guide you through the process and find the best loan option for your unique situation. Whether you want to downsize, move closer to family, or purchase a multi-family property, a reverse 4 purchase loan can be a great option for seniors looking to purchase a new home. Contact us today to learn more about how we can help you achieve your homeownership goals. *Reverse mortgages are loans offered to homeowners who are 62 or older who have equity in their homes. The loan programs allow borrowers to defer payment on the loans until they pass away, sell the home, or move out. Homeowners, however, remain responsible for the payment of taxes, insurance, maintenance, and other items. Nonpayment of these items can lead to a default under the loan terms and ultimate loss of the home. FHA insured reverse mortgages have an up front and ongoing cost; ask your loan officer for details. These materials are not from, nor approved by HUD, FHA, or any governing agency. Licensed by the Dept of Financial Protection and Innovation under the CRMLA. Equal Housing Opportunity.
