HECM For Purchase

Why You Should Learn About The HECM For Purchase Program

If you or your spouse is at least 62 then this new FHA program can help you move into a new home without having to deplete all your life savings — and save you thousands of dollars you would have otherwise lost in the process.

What’s even better is you don’t have to wait for your existing home to sell either.

Let’s face it, since the fall of 2008 there hasn’t been a lot of good news coming from Wall Street and the banking industry, but the HECM Program comes at a time when a lot of cash-strapped seniors are trying to boost their monthly incomes.  

Maybe you were one of the fortunate few who were not affected by the economic downturn. However, the majority of retired Americans saw their retirement portfolio values plummet, interest rates at banks fall below 1%, and healthcare costs continue to skyrocket.

But help is now available through a new FHA mortgage program, known as the Home Equity Conversion Mortgage, or HECM for Purchase Program. This little known program has been available since January, 2009 and you may be wondering why you haven’t heard about it until now. The likely reason is because currently most banks do not offer it.

The FHA developed the program because it noticed seniors were selling their homes, buying smaller, more affordable homes and then taking out reverse mortgages on the new properties. That meant they were paying closing costs twice — first on the real estate closing, and a mortgage if they needed one to make the purchase, and then again when they switched to a reverse mortgage.

But now, the new HECM for Purchase Program allows seniors to buy a home directly with a reverse mortgage — paying closing costs only once, says Bill Glavin, special assistant to the commissioner of the FHA. A sale of an existing home is not necessary and is not part of this transaction.

First Let’s Address The Big Problem

The Real Estate Bubble

Maybe you’ve lived in your current home for awhile and you own it free and clear. That’s great news; however the bad news is…your home’s value has declined sharply when the real estate market crashed in 2008.

It would not be a stretch to say that if your home was valued at $200,000 in 2008 then its current value may have dropped to $140,000 by the end of 2011. That’s a whopping 30% decline in value. This is happening in every small town and big city all across America.

What makes this a big problem is when it comes time to sell your home. Maybe you’ve been thinking about downsizing to something smaller, or prefer a single story, or maybe you just want to spend your retirement years living in a brand new or newer home with features like a golf course, tennis courts, walking paths and a pool.

Lost home equity combined with longer timelines for selling your existing home doesn’t have to squash your hopes and dreams of new home ownership.

Before the HECM Program your only option was to sell your home for less and then purchase your new home with a lower price tag.

The reason for this was simple…if you received less for the sale of your existng home, then that has a direct impact on your purchasing power for your new home.

Using a HECM, you really can move into your dream home with as little as 44% down, while never having to make a monthly mortgage payment. And you don’t have to wait for your existing home to sell before doing all of this!

“Ok, Now You Got Me Excited But What Exactly Is The HECM For Purchase Program?”

In a nutshell, the HECM for Purchase program is an aged-based mortgage backed by the FHA for folks aged 62 and older. Unlike a traditional mortgage, monthly payments are deferred and the loan balance increases over time. Because the loan is backed by the FHA, neither the borrower(s) nor their heirs are personally liable for the debt.

So what does all that really mean?

It’s actually very simple…let’s say you use a HECM to purchase your dream home and decide to move in 10 years. When you sell your home you would receive 100% of the net proceeds after paying off the loan balance at the time of the sale. This is exactly how a traditional mortgage works.

The primary benefit of using a HECM comes into play during your living years in the fact that you are not paying a monthly payment to the mortgage company, thereby increasing your monthly cash flow.

The secondary benefit is for your heirs. What if at the time of your passing your loan balance is greater than the value of your home — what happens?

In a traditional mortgage scenario your heirs would be forced to sell the home at a loss and cover the difference. The terms of a HECM program mandates that neither you nor your heirs are personally liable to cover the difference if your home is sold for a loss. Simply put, it’s not your problem and no one is coming after your estate for a settlement.

 

 

Leave A Reply (2 comments So Far)


  1. David and Kay Buxton
    2 years ago

    Other than age or ages of purchasers, how is the purchase price of the conversion mortage determined? How does one know that what is being purchased is sold at a fair market value and is there any room for negotiating.?


    • admin
      2 years ago

      The purchase price is what the house is being sold for. The market value is what the appraiser states is the value. If the market value is lower than the purchase price, the number to determine the amount you bring to closing is based on the lower of the two.

      You can still use the program to purchase, you would just need to bring the difference to closing. This doesn’t happen too often. Typically the purchase price is what the appraisal comes in at.

      In the few cases where the value did come in lower than the purchase price, negotiations did take place and usually they meet in the middle. The seller comes down a little and the borrower (buyer) brings a little more to closing.


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