A Home Equity Conversion Mortgage (HECM or H4p, Reverse For Purchase), commonly known as the new reverse mortgage, is a HUD Program that is insured by the Federal Housing Administration (FHA) enabling retirees across the country to live a more enjoyable retirement. It is the safest and most popular type of reverse mortgage on the market, and the only reverse mortgage insured by the federal government.
When you utilize a Purchase HECM, your HECM funds are paid in a lump sum directly to the seller at the close of escrow – just like with a traditional mortgage. However, the big difference is that you will never be required to make monthly loan payments for as long as you live in your new home** and continue to satisfy loan conditions. Loan requirements include home maintenance and payment of property taxes, homeowner’s insurance, and any HOA fees.
The Purchase HECM is ideal for those who want to purchase the best home for their retirement needs – without impacting their monthly cash-flow by taking on another monthly payment obligation.
Benefits of Purchasing Your Next Home With a HECM:
- Increased purchasing power to buy the home that best meets your needs.
- Keep additional cash assets in reserve to maintain a more comfortable retirement.
- Increased monthly cash flow- since monthly mortgage payments are not required you are able to minimize the impact on your monthly obligations.
Qualify for a HECM for Purchase
Whether you are rightsizing your housing needs, moving closer to family, a better climate or simply to a home that better meets your needs, qualifying criteria for a HECM is much easier than that of a traditional mortgage. All you need is…
- Have a minimum of 50% as a down payment on the home, the percentage of which is determined by your age: the older you are, the lesser the amount is required to put down.
- Live in the new home as your principal residence and keep up with property maintenance, taxes and insurance
- Meet the current residual income and credit requirements
- It is still possible to qualify for a HECM, however a set aside of funds for your property taxes and insurance may be required if income and credit requirements are not met.
Requirements of the Homeowner and Safeguards
- Homeowners are responsible for maintaining the home as their primary residence, keeping up with property maintenance, and staying current on paying property taxes, required insurance, and any homeowners’ fees. Home must be maintained in habitable condition as defined by HUD.
- The balance of the loan, including interest charges, becomes due when the borrower(s) do not use the home as their primary residence or fail to meet their responsibilities under the terms of the loan.
- Neither your estate nor your heirs are personally liable to cover the difference if your home is sold at a loss if, at the time of your passing (e.g. your loan balance is greater than the value of your home).
**Borrowers are responsible for occupying the home as their primary residence, keeping up with property maintenance, and staying current on paying property taxes, required insurance and any homeowners’ fees. The balance of the loan, including interest charges, becomes due when the borrowers do not use the home as their primary residence or fail to meet their responsibilities under the terms of the loan.
With this loan product you can purchase a home (or a condo) for 50 to 60 cents on the dollar, however, you must be 62 or older and have a substantial cash down payment.
In Summary
A HECM purchase requires a cash down payment of between 50 and 60% of the purchase price, depending on your age. The remainder is financed with an FHA insured mortgage.
As long as you live in the house you do NOT have to make any mortgage payments. Neither you nor your heirs will be personally liable for the loan (e.g. your loan balance is greater than the value of your home). .
An example… Let’s say you sell your suburban family home after the kids have moved out and you net $350,000 at closing. With that money you want to buy a new ranch condo for the same price. Instead of paying all cash, you make a down payment of $210,000 and finance the rest with a HECM mortgage.
Here’s how you win: you don’t have to make any mortgage payments for the rest of your life, and you have $140K to do with as you please (invest, support your grandchildren, travel the world, etc.)
This video offers a quick explanation on how a HECM mortgage works:
Here are some common examples of what a HECM can help you do:
- Purchase a new home to fit your lifestyle needs
- Protect your retirement portfolio
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Reduce monthly expenses by paying off existing mortgage or consolidating debt
- Enhance your cash flow
- Incorporate housing wealth into your retirement plan
- Create an emergency fund
- Increase cash to help ensure monthly bills are paid
- Fund for home repairs or upgrades
- Reduce the burden of out-of-pocket healthcare costs
- Fund the expense for caregivers, live-in nurses, or other in-home care
- Have the cash for a large expense, such as a vacation or vehicle
For more information on the HECM Mortgage Program click here.
The Opland Group Specializes in Real Estate Sales, Luxury Home Sales, Short Sales in; Bexley 43209 Columbus 43201 43206 43214 43215 Delaware 43015 Dublin 43016 43017 Gahanna 43219 43230 Grandview Heights 43212 Hilliard 43026 Lewis Center 43035 Marysville 43040 43041 New Albany 43054 Pickerington 43147 Powell 43065 Upper Arlington 43220 43221 Westerville 43081 43082 Worthington 43235
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