Understanding a HECM for Purchase

The Home Equity Conversion Mortgage – a type of reverse mortgage – is a financial tool that allows you to convert a portion of your home equity into money that can be used however and whenever you like. Three popular versions of the HECM include HECM Fixed, HECM Adjustable, and HECM for Purchase. To find the right reverse mortgage for you, you need to look at your financial situation. For example, if you are looking to downsize and purchase a new house, HECM for Purchase may be the right program for you. However, a HECM may not actually be your ideal reverse mortgage – instead, another option may be better suited to your current situation.

What Is a HECM for Purchase

The HECM for Purchase is a loan that allows senior homeowners who are 62 years or older to purchase a new principal residence using loan proceeds from the reverse mortgage. It allows borrowers to purchase the home with a single down payment and does not require monthly payments. Homeowners must pay property taxes, homeowners insurance, and maintenance expenses to avoid foreclosure.

Why Get a HECM for Purchase

There are many reasons why people get a HECM for Purchase loan. One of the main reasons, as stated earlier, is that some people wish to downsize their house. This could be because their house has become too big and they would feel more comfortable in a smaller house. Along with this, some people desire to be closer to their loved ones which may require them to relocate. Finally, some people simply want to move to a warmer climate when they retire. If any of these situations are similar to yours, your next step would be to figure out if you qualify for a HECM for Purchase loan.

Eligibility

The eligibility for the HECM for Purchase plan is similar to that of most reverse mortgages. There are a few additions, which include:

  • The purchased home must be a primary residency and be occupied within 60 days of the loan closing.
  • The purchased home must be a single-family home or an FHA approved condo.
  • The 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 residences, the home buyer’s other assets, or savings.

Benefits

There are many benefits to getting a HECM for Purchase loan. Some of the main benefits include:

  • Elimination of your monthly mortgage payment
  • Increasing your purchase power
  • Lowering your cost of living
  • Retaining full ownership of your home

Homeowners must pay property taxes, homeowners insurance, and maintenance expenses to avoid foreclosure.

Common Questions

There are many questions that can arise when looking into getting a HECM for Purchase loan. This type of decision is a big one to make, so it requires as much information as you can get your hands on. Two of the most common questions we get asked are:

  1. What are the monthly fees?
  2. When must the loan be paid back?

To answer the first question, there are no monthly payments required. However, you will have to pay your property taxes, homeowners insurance, and maintenance expenses to avoid foreclosure. This is one of the many ways this plan is unique in comparison to other mortgage loans. The loan does not need to be repaid until the home is sold, it is no longer the primary residence, or the borrower passes away. When this happens, the loan is can be immediately settled through selling the home and using these funds to cover the balance on the loan. Even if this balance exceeds the home’s value, the loan may still be settled by selling the home and paying back as much of the balance as possible with these funds. The rest is covered thanks to federal insurance. If an heir wants to keep the house they can do so by refinancing the existing reverse mortgage to another loan. If you have more questions about the HECM, check out this article that features some of our most frequently asked questions.

Whether you are looking to relocate after retirement to someplace sunny and warm or you simply want to downsize to a smaller house for comfortability, it is important for you to understand that there are programs that can help you through this process. By having a better idea of what a HECM for Purchase loan is, you may feel more confident going forward in your retirement plans.