A reverse mortgage, commonly known as HECM (Home Equity Conversion Mortgage), is a financial tool designed to for senior homeowners to borrow equity from their homes. There are three different product options a reverse mortgage offers, HECM Fixed, HECM Line of Credit, and HECM for Purchase.
What is HECM for Purchase?
The HECM for Purchase program allows senior homeowners 62 or older to access the equity in their current home, then use the loan to purchase a new property under one closing with no monthly payments.*
What are some common reasons for a HECM for Purchase loan?
One reason a senior homeowner might consider a HECM for Purchase loan is that their current home is too big for them now and they would be more comfortable in a smaller home, so they want to downsize. Another popular reason is that the senior or seniors wish to be closer to their family. Other common reasons include relocating to warmer weather and lowering the cost of living during retirement.
What are the eligibility requirements?
- Borrower must be at least 62 years old
- The purchased home must be a primary residence and be occupied with 60 days of the loan closing
- The purchased home must be a single family home or a FHA approved condo
- Borrower must complete a HUD approved counseling session
- The difference between the purchase price of the new home and the HECM loan proceeds must be paid in cash from qualifying sources such as the sale of prior residence, home buyer’s other assets or savings
Is there protection for borrowers?
- Mortgage Insurance Premium or MIP guarantees that the amount you owe on your loan can never exceed the value of the home at the time of the sale
- A Housing and Urban Development (HUD) approved counseling appointment is required prior to loan
- The loan is a non-recourse loan which means that the only asset that is attached to the loan is the home, no other assets can be attached if the loan balance grows beyond the mortgage value
What are the benefits?
- No income or credit checks
- Eliminates your monthly mortgage payment*
- Increases your purchase power
- Lower your cost of living
What are the monthly fees?
There are no monthly mortgage payments.* The only fees you are responsible for are for the taxes, insurance, and maintenance of the property.
When must the loan be paid back?
The reverse mortgage balance only becomes due when the home is sold, the home is no longer a primary residence, or the borrower passes away. Normally, the loan is paid back by the selling of home. Nonetheless, it is your heirs decision whether or not they want to sell the home. If they wish to keep the home, they can do so by refinancing the existing reverse mortgage to a conventional mortgage loan. If they decide to sell the property, and the proceeds exceed the amount of the home, they keep the difference. However, if the proceeds are not sufficient to pay off the loan, the bank absorbs the remaining balance.
*Homeowner is still responsible for taxes, insurance and property maintenance.