Reverse Mortgage for Home Purchase

A HECM (Home Equity Conversion Mortgage) can be used for purchasing a home. You will never have to make a monthly principal or interest payment after buying your home if you use a reverse mortgage for home purchase, sometimes referred to as H4P.

That’s right, if you are 62 or older you can use this type of financing to buy a new or different home. The loan is specifically called “HECM for Purchase.” It is insured by FHA and backed by HUD. Using this program as part of an overall strategy for planning a secure retirement is something that has gained a lot of traction in recent years. Financial planners are increasingly recommending this product to retirees or soon to be retired clients.

Many senior citizens find that they wish to downsize or move from the large family home to a home that is more accommodating to their lifestyle during retirement. To that end, FHA introduced the unique purchase reverse mortgage in late 2008. Since that time, many retirees have used this loan to buy a house without obligating themselves to monthly mortgage payments for as long as they live in the home.

Cash Requirements

This loan requires a substantial down payment from you, the borrower, in combination with the loan proceeds from the HECM for purchase mortgage. The two sums combined make up the total purchase price for the home. In other words, the amount of your cash contribution and your age(s) will determine how much home you can afford to buy using a HECM for Purchase.

Here is an example of a real life borrower that recently took advantage of the H4P loan program.

Evelyn, a 62 year old single woman sold her previous house for $350,000. At the time of the sale she had a mortgage balance of $25,000. After the cost of selling her home and paying off the old mortgage, she netted $300,000.

She then found a property in a retirement community that she liked for $400,000. At the current interest rate of 5%, using a Fixed Rate HECM for purchase loan, Evelyn was eligible to borrow $225,000. Her cash contribution to the total purchase price was $175,000.

After making the required down payment($175,000) toward the total price of $400,000., Evelyn still had $125, left over from the sale of her old home AND no monthly mortgage payments on her new home.

Evelyn now has peace of mind on two fronts; she has a nice size nest egg that’s liquid and that she can invest however she wishes, and she has no monthly mortgage payments for as long as she lives in her new home. How great is that?

As more retirees are awakening to the financial planning attributes of combining a reverse mortgage loan into their overall arsenal of tools for strategically planning a comfortable retirement life, the more popular the HECM loans are becoming. They are not only being embraced by senior borrowers themselves, but by financial planners, estate and trust attorneys and CPA’s.

Why not investigate for yourself whether a reverse mortgage for purchase might be a wise strategy for your retirement plans. Request a no obligation analysis today and evaluate your options.

home purchase