Page 4 - AAG126_HECM for Purchase for Realtors Booklet

What is a HECM for Purchase Loan?

A Home Equity Conversion Mortgage (HECM), introduced in
1989, is a type of reverse mortgage insured by the Federal
Housing Administration (FHA) and offered exclusively to
Americans 62 and older. With a HECM, seniors can convert much
of their home equity into cash. It also gives them the means to
live in their home without mortgage payments so long as they
continue to comply with their loan terms, such as maintaining
the home and paying all property taxes and homeowners
insurance.

In 2009, the U.S. Department of Housing and Urban
Development simply expanded the HECM’s many features
and advantages to include older Americans who wanted to
purchase and live in a new home that would better fit their
needs. This new loan was appropriately named the HECM for
Purchase.

How Does it Work?

A HECM for Purchase loan combines the homebuyer’s one-time
initial down payment (typically 45-70%) with proceeds from the
HECM for Purchase lender to complete the purchase. The down
payment must come from the homebuyer’s existing assets (such
as a savings, checking, retirement account or equity from the
sale of the buyer’s previous home).

Although the required down payment for a new home financed
with a HECM for Purchase may often be larger than that for a
traditional mortgage, the HECM for Purchase provides the buyer
the option of no monthly mortgage payments, as long as the
loan terms continue to be met, such as paying property taxes,
homeowner’s insurance, HOA fees and home maintenance
costs.

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