Home Equity Conversion Mortgage (HECM) for Purchase
For clients 62 years or older, a HECM loan is designed to assist seniors to buy their next home, combining proceeds from the sale of a previous residence with a reverse mortgage – all within a single transaction.
Why Consider a HECM for Purchase?
Replaces traditional mortgage to finance a new home
The down payment is obtained from the sale of current home (or other savings and assets) and combined with a reverse mortgage
No monthly mortgage payments (borrower is responsible for continued payment of taxes, insurance, maintenance and applicable HOA fees)
HECM for Purchase Example:
Sale of client’s existing home: $500,000 New Home purchase price: $350,000
Pay off existing mortgage: $200,000 Down payment: $200,000
Available cash after payoff: $300,000 Complete purchase with HECM: $150,000
Monthly mortgage payment: $0
Remaining proceeds $100,000 to be used at the client’s disposal
Benefits of a HECM for Purchase:
Pay closing costs only once instead of paying during the purchase and refinance to access additional funds Loan proceeds are tax-free
Increased discretionary cash
Allows clients to ‘right-size’ their housing needs— relocate closer to family, downsize, or find housing that is easier to navigate with your borrower’s current needs in mind
The borrower must be 62 years or older (non-borrowing spouse may be under age 62)
Existing Property: Must be occupied as a primary residence
New Construction: The Lender may take the initial loan application prior to the receipt of the certificate of occupancy and may take the initial application either prior to or after the completion of HECM counseling
Purchased property must be a single-family home or FHA approved residence
*Example as of 10/4/2013 and represents typical extensions of credit for a standard fixed-rate HECM loan at 5.06% interest rate. Loan origination fee of up to $5,600 applies based on the given property value. Other closing costs in an approximate amount of $4,000 also apply, as well as an Upfront Mortgage Insurance Premium payable to HUD of 2% of the property value.