What is HECM (Home Equity Conversion Mortgage) for Purchase?

Using a Reverse Mortgage to Purchase a New Home

My husband and I are 72 years old respectively, we live in Orange County and we qualify for a reverse mortgage. However, we recently decided that we want to permanently move closer to our daughter, son-in-law and grandchildren in San Diego.  Is it possible to buy a new home with a reverse mortgage?

Yes, it is possible to buy a house with a reverse mortgage. In 2008, Home Equity Conversion Mortgage (HECM) for Purchase program was enacted in order to assist senior  who were looking to afford new primary residences that could better fit their lifestyle and needs, such as moving closer to their grandchildren or finding a home that would be better suited for their physical needs.

The HECM for Purchase program is a FHA-insured loan targeted towards potential senior homebuyers, who are looking for a new principal residence. Usually, seniors are looking to downsize or move closer to the family, or find a home to fit their physical needs (i.e. one story homes, railways, etc.). HECM for Purchase allows them to purchase the home and obtain a reverse mortgage in one transaction.

This program allows senior citizens (62 years or older) to purchase new homes, without using up all of their life savings. Unlike traditional mortgages, your monthly mortgage payment is deferred and all you need to do is put down approximately 30% of the down payment (it may be higher or lower depending on age of youngest borrower). Another plus is that your children/heirs will not be held personally responsible for paying the difference if the home is sold at a loss.

Prior to the HECM for Purchase program, seniors would sell their home, purchase a new property, obtain a conventional mortgage loan, and then apply for a reverse mortgage loan. That process could be a very long and expensive process. The HECM for Purchase program made it easier for seniors to quickly and easily move to a new home that fits their needs. The HECM for purchase can help finance their new home with only paying a portion of the down payment. As long as the borrowers live in the new house as primary residence, they can go without making monthly payments if they continue to meet the terms of the loan.

Here is some basic information regarding the HECM for Purchase program:

To qualify for a HECM for Purchase:

• To qualify, the youngest borrower must be 62 years or older.
• Like a regular reverse mortgage, borrowers must attend HUD approved counseling session and receive a signed certificate indicating that they had done so.
• The difference between the purchase price of the new home and the reverse mortgage loan proceeds must be paid in cash from qualifying resources.
• Borrower must occupy property as primary residence within 60 days of closing.

 Properties Eligible for HECM for Purchase:

• Single Family Homes.
• Two-Four unit properties (one of the units must be occupied by the owner).
• Manufactured homes after June 15, 1976 that meets HUD requirements.
• HUD-approved condos.
• Planned Unit Developments (PUD).

 How is the HECM For Purchase is similar to a regular Reverse Mortgage loan?

• The borrower, not the bank, owns the property.
• You must continue to pay property taxes, homeowner’s insurance and any applicable    homeowner’s association fees.
• You are required to attend FHA-mandated counseling prior to applying.
• It is an FHA-insured loan.
• You must be 62 years or older to qualify.
• The loan is due once any of the following maturity events occur:
  • Last remaining borrower passes away
  • Homeowner decides to sell home.
  • The borrower(s) is not living at the primary residence for 12 consecutive months.
  • Homeowner/borrower does not fulfill obligations to paying taxes, insurance or homeowner’s fees.

 How is the down payment determined?

• The age of the youngest titleholder.
• Current expected interest rates and fees.
• The lesser of either the sales price or appraised value of home.

To learn more about the HECM for Purchase loan, speak with an advisor at 1-888-808-8486.

Read Related Articles:

HECM for Purchase Basics

HECM for Purchase 101

What Should Seniors Look For In a New Home

About the Author:

I have been working in the reverse mortgage industry for 20-plus years. My goal is to provide consumers the most up-to-date and relevant information about the reverse mortgage industry and how it can affect them.

Thanks for reading!

-Alan F.