HECM Reverse Mortgage for Purchase
Did you know that you can use the equity in your current home to purchase a new home, not make a mortgage payment, all without paying all cash?
You may have heard about reverse mortgages and how they can help you tap the equity in your current home to help with living expenses. But did you know that you can also buy a new home with a reverse mortgage? it's true, and here's the best part you’ll never need to make monthly mortgage payments on your new home as long as you live in the property, pay the property tax and insurance, and maintain the home.
What is HECM for Purchase?
A Home Equity Conversion Mortgage (HECM) for Purchase is a reverse mortgage that allows seniors age 62 or older to purchase a new primary residence using loan proceeds from the reverse mortgage.
• HECM Reverse Mortgage for Purchase: Exclusively for home buyers age 62+. The age requirement for Non-HECM Reverse Mortgages is 55.
• HECM Reverse Mortgage for Purchase: Flexible repayment feature — The borrower can choose to repay as much or as little as they like each month or never make any monthly principal and interest payments. The flexible repayment feature makes it easier for a buyer to afford the home they really want, preserve more savings and retirement assets, and improve cash flow. As with any mortgage, the borrower must keep current with property-related taxes, insurance, and maintenance as part of their ongoing loan obligations. Repayment is generally required once you sell the home, pass away, move out or fail to meet your loan obligations.
Down payment amount:
• HECM for Purchase: Requires a down payment between approximately 45% to 62% of the purchase price, depending on the borrower’s age or Eligible Non-Borrowing Spouse’s age, if applicable. The rest of the funds for purchase come from the new HECM Reverse Mortgage loan. This allows the buyers to keep more assets to use as they wish, as compared to paying all cash, while still having the flexibility of no required monthly mortgage payments.
Eligible Property Types:
Single-family homes; FHA-approved condominiums; townhouses or Planned Unit Developments (PUDs); 2-to-4 unit homes that are owner-occupied; and manufactured homes meeting HUD guidelines.
Protection against owing more than your home is worth:
• HECM for Purchase: A Federal Housing Administration (FHA)-insured program, HECM for Purchase, has a non-recourse feature, which means the borrower can never owe more than the home is worth when the loan is repaid. The home is the only source of repayment regardless of the loan balance at maturity.
Let’s take a look at an Purchase example:
John and Sophia want to sell their home in Los Angeles and purchase a retirement home on a golf course in Palm Springs. Also, they do not want a mortgage payment on the new purchase.
They should clear about $975,000 after selling their current home. The new home will cost $1,500,000, which means they can’t pay cash to avoid a mortgage payment.
If they use a Reverse Mortgage for purchase based on their age, they can get a new loan of $705,000, leaving them with a down payment of $795,000, which will leave them with over $150,000 cash to use however they like, and No Mortgage payment.