A Home Equity Conversion Mortgage (HECM), or reverse mortgage, allows homeowners age 62 and older to tap into their home’s equity. The funds can be used to supplement retirement income, travel or for any number of other purposes while allowing the homeowners to remain in the home as long as they like.

But, what about someone interested in downsizing their home or relocating to a new city? A 2009 expansion of the HECM program may be the answer.

HECM for Purchase

The HECM for Purchase opens a new avenue for seniors interested in using a reverse mortgage to purchase a home. Still designed for those ages 62 and up, the HECM for Purchase combines the benefits of a traditional reverse mortgage with a substantial down payment, allowing seniors to live in a new home that better suits their life without having to pay cash or make any regular monthly mortgage payments. Of course, the homeowner will still need to pay the property taxes, insurance and other homeowner expenses.

If lower out-of-pocket expenses for a new mortgage and increased purchasing power sound like an attractive combination, there are a few limitations to keep in mind before making any offers.

Property Requirements

The HECM for Purchase can only be used to buy single-family homes, FHA approved condos or properties with four units or less where the owner resides in one of the units. Newly constructed homes are acceptable, but a certificate of occupancy must be granted before the HECM can be completed. While this encompasses a lot of properties on the market, there will be some exceptions.

Running a bed-and-breakfast will require finding alternative financing, as they are specifically excluded. Likewise, buying into cooperative housing—apartment-style buildings where residents purchase shares of the corporation rather than actual real estate—is prohibited. Mobile or manufactured homes built before 1976 could not be purchased via HECM. However, new versions that meet HUD’s guidelines for safety and permanent foundations may qualify.

However, if you’re over 62 and have your sights set on a traditional home that meets the requirements, contact Open Mortgage today to learn more about HECM for Purchase.

Things to know about Reverse Mortgages:

  • At the conclusion of a reverse mortgage, the borrower must repay the loan and may have to sell the home or repay the loan from other proceeds
  • Charges will be assessed with the loan, including an origination fee, closing costs, mortgage insurance premiums and servicing fees
  • The loan balance grows over time and interest is charged on the outstanding balance
  • The borrower remains responsible for property taxes, hazard insurance and home maintenance, and failure to pay these amounts may result in the loss of the home
  • Interest on a reverse mortgage is not tax-deductible until the borrower makes partial or full re-payment

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