Program allows reverse mortgage for a purchase

Reverse mortgages have been available for more than two decades for older homeowners who have accrued a significant amount of equity in their homes and want to tap it. Now, the government is backing a program to help older homeowners purchase a home with the increasingly popular financing program.

The Federal Housing Administration, a component of the U.S. Department of Housing and Urban Development, insures the nation’s most popular reverse mortgage — known as the Home Equity Conversion Mortgage.

The Housing and Economic Recovery Act of 2008 recently approved that mortgage for its purchase program, allowing lenders to close them after Jan. 1. The move allows older homeowners to make a large downpayment on a new home and then utilize the reverse mortgage as permanent financing.

The same law reduced the maximum loan fee on reverse mortgages to 2 percent on the initial $200,000 of the home’s value and 1 percent on the balance thereafter, with a cap of $6,000. Previously, the fees were capped at 2 percent of the home’s value or the county lending limit, whichever was lower.

A reverse mortgage historically has enabled senior homeowners to convert part of the equity in their homes into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment. Reverse mortgages are available to individuals 62 or older who own their home. Funds obtained from the reverse mortgage are tax-free.

“The HECM for purchase will give seniors several more options,” said Sarah Hulbert, president of Senior Financial Corp., ( a reverse mortgage lender. “I think one of the key aspects is that they can stay more liquid. They do not have to reinvest all of their funds into their new home before getting the reverse mortgage, freeing up more cash for other uses.”

For example, if a 70-year-old homebuyer wanted to purchase a $300,000 home, he or she could put approximately $123,000 down and finance the balance of $177,000, plus closing costs, with a reverse mortgage. The buyer would make no monthly payments for as long as he or she maintained the home as a principal residence.

Interest and mortgage insurance premium accrues on the initial loan amount and become due when the borrower, or surviving spouse, dies, moves or sells the home. The current annual percentage rate for the monthly adjusted HECM 200 is 3.62 percent (including the government’s 0.5 percent annual mortgage insurance). When refinanced, the rate for the program has averaged approximately 6.5 percent for the past 15 years.

Eligible properties include:

1-to-4 unit single-family homes.

Manufactured homes, built after June 15th 1976, that meet HUD’s permanent foundation guidelines.


“I think you will see the typical purchaser for a home equity conversion mortgage will be the move-down buyer — perhaps headed to the sunshine,” said former Puget Sound resident Ken Keranen, who now originates reverse mortgages for Seniors Reverse Mortgage ( in Carlsbad, California.

Customers interested in the conversion mortgage for purchase must enroll in a HUD counseling class. Borrowers may not obtain a bridge loan (also known as gap financing) or borrow against other assets for the downpayment or closing costs. This restriction includes personal loans, cash withdrawals from credit cards, seller financing and any other lending commitment that cannot be satisfied at closing.

Lenders will be required to verify the source of all funds prior to closing. A verification of deposit, along with the most recent bank statement, may be used to verify savings and checking accounts. If there is a large increase in an account, or the account was opened recently, the lender must be able to obtain a credible explanation of the source of those funds

To avoid cases of property flipping, lenders must take steps to ensure that: Only current owners of record may sell properties that will be financed using FHA-insured mortgages; any resale of a property may not occur 90 or fewer days from the last sale to be eligible for FHA financing; and FHA will require additional documentation validating the property’s value for resale that occurs between 91 and 180 days where the new sales price exceeds 100 percent of the previous sales price.

More than 450,000 conversion mortgages have been made since 1989, the year FHA launch its reverse mortgage pilot program. FHA insured approximately 112,000 home equity conversions in fiscal 2008, up from 107,367 in 2007 and 43,131 in 2005.

The only challenge seniors now face in this slow market is finding a willing buyer to purchase their present home so they can “move down” via a reverse mortgage. After all, you have to sell your primary residence before you can buy another one.

Tom Kelly’s book “Cashing In on a Second Home in Mexico: How to Buy, Rent and Profit from Property South of the Border” was written with Mitch Creekmore, senior vice president of Houston-based Stewart International. The book is available in retail stores, on and on

Talk to us

More in Herald Business Journal

Members of Gravitics' team and U.S. Rep. Rick Larsen stand in front of a mockup of a space module interior on Thursday, August 17, 2023 at Gravitics' Marysville facility. Left to right: Mark Tiner, government affairs representative; Jiral Shah, business development; U.S. Rep. Rick Larsen; Mike DeRosa, marketing; Scott Macklin, lead engineer. (Gravitics.)
Marysville startup prepares for space — the financial frontier

Gravitics is building space station module prototypes to one day house space travelers and researchers.

Orca Mobility designer Mike Lowell, left, and CEO Bill Messing at their office on Wednesday, Aug. 16, 2023 in Granite Falls, Washington. (Olivia Vanni / The Herald)
Could a Granite Falls startup’s three-wheeler revolutionize delivery?

Orca Mobility’s battery-powered, three-wheel truck is built on a motorcycle frame. Now, they aim to make it self-driving.

Catherine Robinweiler leads the class during a lab session at Edmonds College on April 29, 2021. (Kevin Clark / The Herald)
Grant aids apprenticeship program in Mukilteo and elsewhere

A $5.6 million U.S. Department of Labor grant will boost apprenticeships for special education teachers and nurses.

Peoples Bank is placing piggy banks with $30 around Washington starting Aug. 1.
(Peoples Bank)
Peoples Bank grant program seeks proposals from nonprofits

Peoples Bank offers up to $35,000 in Impact Grants aimed at helping communities. Applications due Sept. 15.

Workers build the first all-electric commuter plane, the Eviation Alice, at Eviation's plant on Wednesday, Sept. 8, 2021 in Arlington, Washington.  (Andy Bronson / The Herald)
Arlington’s Eviation selects Seattle firm to configure production plane

TLG Aerospace chosen to configure Eviation Aircraft’s all-electric commuter plane for mass production.

Jim Simpson leans on Blue Ray III, one of his designs, in his shop on Friday, August 25, 2023, in Clinton, Washington. (Ryan Berry / The Herald)
Whidbey Island master mechanic building dream car from “Speed Racer”

Jim Simpson, 68, of Clinton, is using his knowledge of sports cars to assemble his own Mach Five.

Yansi De La Cruz molds a cheese mixture into bone shapes at Himalayan Dog Chew on Thursday, Sept. 21, 2023 in Arlington, Washington. (Olivia Vanni / The Herald)
Give a dog a bone? How about a hard cheese chew from Arlington instead!

Launched from a kitchen table in 2003, Himalayan Pet Supply now employs 160 workers at its new Arlington factory.

Inside the new Boeing 737 simulator at Simulation Flight in Mukilteo, Washington on Wednesday, Sept. 20, 2023. (Annie Barker / The Herald)
New Boeing 737 simulator takes ‘flight’ in Mukilteo

Pilots can test their flying skills or up their game at Simulation Flight in Mukilteo.

An Amazon worker transfers and organizes items at the new PAE2 Amazon Fulfillment Center on Thursday, Sept. 14, 2023, in Arlington, Washington. (Ryan Berry / The Herald)
Amazon cuts ribbon on colossal $355M fulfillment center in Arlington

At 2.8 million square feet, the facility is the largest of its kind in Washington. It can hold 40 million “units” of inventory.

A computer rendering of the North Creek Commerce Center industrial park in development at 18712 Bothell-Everett Highway. (Kidder Mathews)
Developer breaks ground on new Bothell industrial park

The North Creek Commerce Center on Bothell Everett Highway will provide warehouse and office space in three buildings.

Dan Bates / The Herald
Funko president, Brian Mariotti is excited about the growth that has led his company to need a 62,000 square foot facility in Lynnwood.
Photo Taken: 102312
Former Funko CEO resigns from the Everett company

Brian Mariotti resigned Sept. 1, six weeks after announcing he was taking a six-month sabbatical from the company.

Cash is used for a purchase at Molly Moon's Ice Cream in Edmonds, Washington on Wednesday, Aug. 30, 2023. (Annie Barker / The Herald)
Paper or plastic? Snohomish County may require businesses to take cash

County Council member Nate Nehring proposed an ordinance to ban cashless sales under $200. He hopes cities will follow suit.