The Home Equity Conversion Mortgage for Purchase may be a cost effective way for seniors to both obtain a reverse mortgage and buy a new home in a single transaction, however, very few aging homeowners plan to utilize this product for their next home purchase, a recent survey finds.
When buying a new home, one of the earliest decisions a buyer needs to make is how they plan to pay for their new residence. Buyers can either take out a traditional mortgage loan, pay in cash if they have the means, or for homeowners age 62 and older, get a HECM for Purchase (H4P).
An majority of buyers, however, prefer to buy their home using a traditional forward mortgage rather than a reverse mortgage, according to the results from a new survey by the National Association of Home Builders (NAHB) sponsored in part by top-10 industry lender Reverse Mortgage Funding, LLC.
The survey, Housing Preferences of the Boomer Generation, analyzes and compares the home buying characteristics of Millennials (b. 1980—), Gen-X (b. 1965-1979), Baby Boomers (b. 1946-1964) and Senior (b. —1945) consumers. NAHB conducted the survey in two phases in September 2015, using an online consumer research panel maintained by Home Innovation Research Labs.
Of 4,326 total responses garnered by NAHB, only 3% of buyers say they would use a reverse mortgage to pay for their new home, whereas 67% would likely use a traditional mortgage, whereas 28% would pay in all cash. Only 2% of buyers said they would use “other” forms of payment.
Broken down by generation, Baby Boomers were the least likely to use a reverse mortgage to purchase a new home, totaling just 2% of responses, while 62% of this group would rather use a traditional mortgage loan and 32% prefer to pay in cash.
Although just 3% of Seniors said they would use a reverse mortgage for their next home purchase, they were otherwise closely split between using a traditional mortgage (48%) and paying in cash (47%). Even 3% of Millennials and Gen-Xers said they would consider using a reverse mortgage to buy a home, though these younger groups skewed predominately toward traditional forward mortgages (79%).
The minuscule interest in reverse mortgages may be attributed to a widespread lack of knowledge or understanding of the product, especially for the H4P, which still remains a minute share of overall HECM volume. The NAHB study did not explore the potential influencers behind these responses.