What Is a Home Equity Conversion Mortgage (HECM) for Purchase Loan?

What Is a Home Equity Conversion Mortgage (HECM) for Purchase Loan?

If your client is 62** or older, the Home Equity Conversion Mortgage (HECM) for purchase can help them get the home of their dreams without the required monthly mortgage payments.* It is a perfect opportunity to buy their next home without worrying about the finances, property taxes, and other costs. 

In this post, we will talk about the benefits of a HECM, or a reverse mortgage loan, the application process, and the program requirements, so your client and their family can decide whether it is the right decision for them. 

HECM For Purchase: The Basics

A HECM, or reverse mortgage, for purchase is a Federal Housing Administration (FHA)-insured type of loan that allows seniors 62** and older the option to make a down payment on a home while avoiding monthly mortgage payments. As long as they continue to pay for homeowner’s insurance, property taxes, and any HOA fees, lenders won’t require mortgage payments. All the borrower needs to do is make a sizeable down payment on the property they want and let HECM for Purchase make up the rest. 

Some of the benefits of reverse mortgage loans for purchase include: 

•  Eliminate monthly mortgage payments* – Use the monthly cash savings to cover expenses such as home improvements, travel, day-to-day or medical bills. 
• Improved purchasing power – The borrower can utilize cash from the HECM purchase program to buy their dream home, ensure financial freedom, or improve cash flow. 
•  Find the right home – With HECM loan proceeds, your client can move their primary residence to a place they want to age in, whether that’s closer to family and friends or to a nicer climate. 

How Does the Loan Work?

When using a HECM reverse mortgage to purchase a home, the borrower is using a mixture of the proceeds available from a reverse mortgage and their personal funds to purchase the property. Their portion of the money can come from a retirement fund, savings, or the sale of the previous home. 

The borrowing party receives the title to the new property in their name, with the lender maintaining an interest in it. 

The balance of the loan is the amount your client borrowed plus the interest and monthly mortgage insurance premium. It is essential to know that with a HECM for Purchase, or any other reverse mortgage plan, the loan balance grows over time; however, the borrower can never owe more than the home’s future market value. This is due to the non-recourse feature of the FHA-insured HECM. 

The loan amount varies based on three factors: 

•     Youngest borrower age
•     Home value
•     Interest rates

Who Qualifies for HECM for Purchase Loans

Not everyone qualifies for a reverse mortgage program. Here are the basic loan terms and requirements needed to meet to qualify for a HECM for Purchase: 

• The borrower must be age 62** or older (an eligible non-borrowing spouse may be under 62). 

• The borrower’s new property must be their primary residence and meet FHA guidelines. 
• The borrower should have a sufficient down payment to buy the new property and satisfy the financial requests of the HECM. 

Although HECM for Purchase loans release the borrower from required monthly mortgage payments,* they still have financial obligations regarding the property. Therefore, it is essential to stay current with: 

•     Homeowners insurance 
•     Property taxes 
•     Home maintenance & any HOA fees 

Why Consider A HECM to Purchase a Home

Many seniors and home buyers consider a HECM for Purchase loan because of the various benefits it offers. Whether they want to purchase a new home that is easily accessible or easy to maintain, HECM for Purchase is an excellent option to consider. Regardless of your client’s home purchase motivation, some of the reasons they should consider a reverse mortgage for purchase program are: 

• The reverse mortgage program combines two processes into one: buying a new property and funding it with a reverse mortgage payment which saves time and money. 
• The borrower pays closing fees once to real estate professionals. 
• Using a reverse mortgage, borrowers with limited resources can fund the purchase of a new property without a monthly mortgage payment.* 
• HECM for Purchase loans include protection for borrowers, including independent counseling with the Department of Housing and Urban Development (HUD). 
• The mortgage insurance premium ensures the amount the borrower owes can never be more than the property value and sale price. 
• A reverse mortgage can maximize the purchasing power of those who want to buy a new property but can’t qualify for a traditional mortgage. 

Eligible Properties

According to the FHA HECM for Purchase, the property must be eligible for a reverse mortgage. Eligible properties include: 

•     Single-family homes 
•     Two-to-four unit family homes 
•     FHA-approved condominiums 
•     Townhouses or Planned Unit Developments
•   Manufactured properties that meet HUD requirements and loan obligations 

An official lender may not consider an application for a property that isn’t habitable or hasn’t completed construction. In addition, only homes with a Certificate of Occupancy are suitable for a reverse mortgage purchase loan. Besides, the new home must be the borrower’s primary residence within 60 days of the loan closing. 

Is This Loan the Right Option for Your Client?

Before making any loan decisions, your client should consider all facts and information. Make sure to keep these details in mind when guiding them to decide if a HECM for Purchase is the best way for your client to buy their new primary home: 

• The borrower should pay the difference between the loan amounts and the purchase price in cash. The cash investment can come from their personal savings, gifted money, and other assets. 
• The borrower is responsible for the initial expenses, including an origination fee, title insurance, recording costs, and credit report fee. 
• The annual percentage rate can vary based on the margin set by the mortgage originator and the interest rate index. 
• The amount of money the borrower will receive from the HECM program depends on the current interest rates, the age of the youngest titleholder, FHA lending limit, and lesser appraised value. 

At Smartfi Home Loans, we make the mortgage experience stress-free and positive for you and your borrowers. We go above and beyond to ensure the HECM for purchase process goes as quickly and smoothly as possible. 

Contact us today at (877) 816-6706 or complete the Contact Us form to learn more about our home lending solutions.