HECM For Purchase

The HECM for Purchase (H4P) is one of the most exciting recent developments in the world of reverse mortgages.

Not too long ago, seniors wishing to relocate would often find it difficult to do so. First, they would have to be eligible to buy a home with a traditional mortgage, unless they could pay cash for the property.

After that, if they wanted to remove mortgage payments or recoup some of their cash investment they would then have to apply for a reverse mortgage refinance. This was not only time-consuming but expensive as there were two sets of closing costs.

Starting in 2010 the FHA introduced the reverse mortgage purchase loan, known as HECM for Purchase, or simply H4P. This was a real game changer, as seniors wanting to buy another home could now do so as a single transaction, thereby eliminating much time, hassle and expense.

 

Here are some illustrations as to how this program works:

Tom and Nancy are 70 years old and wish to relocate to be closer to family. They sell their home of many years for $500,000. After paying off their mortgage balance of $200,000 they are left with $300,000 in cash. What are their options?

• They could pay cash for a property up to $300,000.
• They could buy a more expensive home with a traditional mortgage using some or all of their cash pile. In this case, they would then commit to a new mortgage payment for up to 30 years.
• Using the HECM for purchase loan, they could buy a home for $500,000. The down payment would be approximately $225,000 and they would carry the balance with a reverse mortgage of $275,000. They now get to live free of monthly principal and interest mortgage payments whilst also keeping $75,000 in their pocket. This may sound too good to be true, but it is entirely possible and realistic.

As with all HECMs this program is only designed to be used for a primary residence, and as such you must move in within 60 days of closing. By the way, a house is not the only property type that can be purchased or refinanced with a reverse mortgage loan.

Condominiums, townhomes, certain manufactured homes and multi-unit properties of up to four units are potentially eligible. In the case of condos or planned unit developments, the entire complex must be FHA-approved.

Whether you are upsizing, downsizing or retiring to a senior community, call us today to analyze your scenario in specific detail. Quite simply, the HECM for purchase is the most powerful tool available for seniors who want to buy another home and who wish to live free of monthly principal and interest mortgage payments.