For people over the age of 62 who either own their home or are still paying a mortgage on their current primary residence, the HECM for purchase may be the right way to be able to buy a new home and not have to make any payments.
If this sounds too good to be true, you may not have heard of the Home Equity Conversion Mortgage for Purchase program, which is really a reverse mortgage and new home purchase rolled into one simple and streamlined transaction.
How it Works
With the HECM for purchase program, those 62 or older can apply for a reverse mortgage on their current residence and have significant equity in the property or own it completely.
Additionally, it has to be the borrower’s primary residence, and the borrower has to demonstrate the ability to pay all ongoing property costs on the new property. This includes taxes, homeowners’ insurance, HOA (Homeowners’ Association) dues and to have the ability to maintain the home in reasonable condition.
Another factor that has to be met is that the borrower cannot have any outstanding federal debt. This is not just for the reverse mortgage, but for any type of federal finance program.
Once approved, the borrowers will also have to purchase an already built home that is either a single- or multiple-unit home, with no more than 4 units in the home, and the borrower must live in one unit as their primary residence.
With this program, the borrower will need to have 40% to 50% of the purchase price of the new home. This can come from the reverse mortgage, from savings or a combination of the two.
The other half of the cost of the home is covered by the lender, but as with a reverse mortgage, the senior will not be responsible for any payments on the loan while either of the borrowers, in the case of spouses, still live in the home.
With this option, if there is enough equity in the existing home, the borrowers may not have to use any of their savings to move into a new home. This can also be a benefit as the borrowers can downsize, move into a new location, or choose a home that is more appropriate for their mobility or health needs.
It is important to realize that by using the HECM for purchase, the borrower may be able to retain their current home, but not as a primary residence. If you ever sell the new home, the loan will need to be paid as per the terms of the reverse mortgage agreement.
At Longbridge Financial, we can explain the full benefits of a HECM for purchase to determine if this is a good option for your financial plans.