Home buyers with variable income often wonder if they can qualify for a mortgage loan…
Using a Reverse Mortgage to Buy a House in California
If you have a TV, you’ve probably seen an advertisement for reverse mortgage loans. You might even have a pretty good understanding of how these loans work. But did you know it’s possible to use a reverse mortgage to buy a home in California?
It’s true. In fact, this is a fairly common strategy among California homeowners who use reverse mortgage loans. Today, we’ll take a look at how it all works, and how you might benefit from this kind of borrowing strategy.
The Reverse Mortgage Explained
Let’s start with a quick definition of the reverse mortgage, and then move on to discuss how you might use one to buy a home in California.
In a separate blog post, we explained the basic concept of a reverse mortgage. So that article is worth reading, if you’re in the market for one of these specialty loan products. Here’s the short version:
- With a regular home loan, the homeowner / borrower makes monthly payments to the lender in order to buy the home over time.
- With a reverse mortgage, homeowners can obtain a loan in which the lender pays them. This type of loan takes a portion of the home equity and converts it into payments that are sent to the homeowner.
Reverse mortgages are usually limited to borrowers who are 62 years of age or older. The loan is repaid when the homeowner / borrower no longer lives in the house or passes away.
Homeowners can use the proceeds from a California reverse mortgage for just about anything. Some people use them to cover medical expenses, vacations, a child’s college tuition, etc.
But it’s also possible to use a reverse mortgage to buy a home in California. So let’s talk about that next…
Using It to Buy a Home in California
There are different types of reverse mortgages available these days, including jumbo-sized loans for high-value properties.
One of the most popular products is the Home Equity Conversion Mortgage (HECM). This is a HUD program, similar to the FHA loan program that can be used to buy a house. But like other reverse mortgage products, the HECM allows homeowners to convert their equity into cash via regular monthly payments.
Eligible homeowners in California can use an HECM reverse mortgage to buy a house. As it states on the ConsumerFinance.gov website, the HECM purchase option “allows people 62 and older to purchase a new principal residence with HECM loan proceeds.”
Like most other reverse mortgage products, the “HECM for Purchase” loan requires homeowners to be 62 or older when the loan is taken out. Additionally, the home you are purchasing must serve as your principal or primary residence (i.e., where you live most of the time).
You’ll also need sufficient funds to cover the down payment on the house you’re buying. You’ll likely encounter closing costs as well, like you did when you purchased the house you’re in now. The lender will ensure that you have enough funds to cover all of these purchase-related costs.
There’s also the sale price to consider, for the home you’re purchasing. If the proceeds from your reverse mortgage (for the house you’re in right now) fall short of the purchase price (for the house you’re buying), you’ll need enough cash and/or down payment to cover the difference.
Bridgepoint Funding Is Here to Help
Bridgepoint Funding offers a broad range of mortgage products for California home buyers and homeowners, and that includes reverse mortgages. Please contact us if you have questions about this financing strategy, or if you would like to apply for a loan.
As a mortgage broker-based company, we have access to multiple lenders. This allows us to find the most suitable loan product or program for each individual client. Please contact our staff if you have questions about using a reverse mortgage to buy a home in California.
