If you are 62** or older, the Home Equity Conversion Mortgage (HECM) for purchase can help you get the home of your dreams without the required monthly mortgage payments.* It is a perfect opportunity to buy your 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 you and your family can decide whether it is the right decision for you.
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 you continue to pay for homeowner’s insurance, property taxes, and any HOA fees, lenders won’t require mortgage payments. All you need to do is make a sizeable down payment on the property you 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.
- Improve your purchasing power – You can utilize cash from the HECM purchase program to buy your dream home, ensure financial freedom, or improve cash flow.
- Find the right home – With HECM loan proceeds, you can move your primary residence to a place you want to age in, whether that’s closer to family and friends or to a nicer climate.
How Does the HECM for Purchase Loan Work?
When you use HECM reverse mortgages to purchase a home, you are using a mixture of the proceeds available from a reverse mortgage and your personal funds to purchase the property. Your 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 you’ve 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 amounts 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 you need 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).
- Your new property must be your 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 you from required monthly mortgage payments,* you 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 Reverse Mortgage Purchase Loan
Many seniors and home buyers consider a HECM for Purchase loan because of the various benefits it offers. Whether you 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 home purchase motivation, some of the reasons you 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 includes protection for borrowers, including independent counseling with the Department of Housing and Urban Development (HUD).
- The mortgage insurance premium ensures the amount you owe 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.
HECM 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 your primary residence within 60 days of the loan closing.
Is HECM for Purchase Loan the Right Option for You?
Before making any loan decisions, you should consider all facts and information. Make sure to keep these details in mind when deciding if a HECM for Purchase is the best way to buy your 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 your 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 you 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, LLC, we make mortgage experiences stress-free and positive. We go above and beyond to ensure the HECM for Purchase loan process goes as quick and smooth as possible. Contact us today at (877) 816-6706 or complete the Contact Us form to learn more about our home lending solutions.