I have to go to real estate classes to get points for my license renewal. A few weeks ago I had a free day and went to a class about how to buy a retirement home using a reverse mortgage. It was more interesting than I expected.

There is an FHA program called a Home Equity Conversion Mortgage for Purchase. With a large down payment, usually around 50%, you can buy a house with no monthly payments as long as you live in the home. There is of course a monthly charge that gradually eats up the 50% or so equity you have in your house but at the same time the house should be appreciating in value to offset that to some degree.

Why would anyone do this ? A lot of people don’t want a mortgage payment for cash flow reasons on a fixed income. Others don’t want all their cash tied up in a house but don’t want mortgage payments either. Some buyers may have a sizable amount of money from the sale of another home say $100K. However a $100K home usually needs a fair amount of work. Using a HECM the buyer could buy a much newer totally move in ready home in the $175-$200K range with no monthly payments.

What are the negatives ? You gradually lose equity in the home. The closing costs are higher than a traditional loan. The interest rate is higher too.

This isn’t for everyone. Consult your financial planner.