Is A HECM For Purchase Right For You?
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July 8, 2014
in Blog

Is A HECM For Purchase Right For You?

HECM-for-purchase-right-decisionSome seniors want to remain homeowners, but not necessarily stay in their current home. These homeowners may have the ability to use a reverse mortgage loan to use the equity they have in their current home to move to another home while doing away with their monthly mortgage payment1 by using a HECM for Purchase.

A Home Equity Conversion Mortgage for Purchase often provides substantial savings over the alternative of purchasing a new home and later taking a reverse mortgage later.

For example, a four bedroom home which was once ideal may no longer be suitable for a retired couple whose children no longer live at home. Likewise, a two-story home may no longer be accessible for homeowner’s who have developed arthritis in their hips or knees.

Often, yard work and general home upkeep can become an unnecessary burden that downsizing will ease. Other retirees want to spend more time with their children and grandchildren who may live in another city or state.

Whatever the reason for this decision, seniors who have built up significant equity in their home or who have paid off their mortgage completely may be eligible for a HECM for Purchase. This will allow them to move and take out a reverse mortgage in one transaction, saving both time and money.

Borrowers must be at least 62 years old, must move in to the home within 60 days of purchase and must live in the home full time for the life of the loan. The home must be maintained and the homeowner is still responsible for paying taxes and insurance.

The home should be either a single family residence or an FHA-approved condominium and all major home repairs must be completed by the seller before the loan can close. Manufactured homes, bed and breakfasts, cooperatives, and multi-unit housing are not eligible for a HECM for Purchase.

A major advantage of using a HECM for Purchase is that the borrower purchases their new home outright using the proceeds from the sale of their old home, private savings, other sources of income or financial gifts and reverse mortgage proceeds. This leaves the homeowner with no mortgage payment! The loan amount that borrowers may be eligible for depends on their age, the value of the new home and the amount of their down payment.

There are also safeguards in place to protect the borrower.2 The Mortgage Insurance Premium (MIP) guarantees that the amount owed on the loan can never be more than the value of the home at the time of sale. Because the loan is a non-recourse loan, lenders may only seek repayment of the loan from the sale of the home.

No other assets can be touched if the loan grows larger than the value of the home. Heirs are not responsible for repaying the loan, unless they want to keep the home. Finally, all potential borrowers must take part in reverse mortgage loan counseling by a HUD-approved reverse mortgage counselor. The third party counselor will answer any questions the borrower may have about their loan.

For more information about HECM for Purchase options and requirements, call a reverse mortgage advisor at 800.976.6211. Using a reverse mortgage loan to purchase a home can be an excellent financial option for senior homeowners seeking to move and who are planning to take this loan out anyhow.