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What is a HECM for How Do Buyers Qualify?
Purchase Loan?
Qualifications for a HECM for Purchase reverse
A Home Equity Conversion Mortgage mortgage loan are based on these important
(HECM), introduced in 1989, is a type of factors:
reverse mortgage insured by the Federal
Housing Administration (FHA) and offered AGE: Your buyer must be age 62 or older (a
exclusively to Americans 62 and older. non-borrowing spouse may be under age
With a HECM, seniors can convert much of 62)
their home equity into cash. It also gives
them the means to live in their home RESIDENCE: Your buyer’s new home must
without mortgage payments so long as be their primary residence (borrowers must
they continue to comply with their loan occupy property within 60 days of closing)
terms, such as maintaining the home and
paying all property taxes and homeowners DOWN PAYMENT: Your buyer must have a
insurance. sufficient down payment to purchase the
new home
In 2009, the U.S. Department of Housing
and Urban Development simply expanded The borrower(s) must also meet the financial
the HECM’s many features and advantages requirements of the HECM program. The loan amount
to include older Americans who wanted is based on the age of the youngest borrower or
to purchase and live in a new home that eligible non-borrowing spouse, prevailing interest
would better fit their needs. This new loan rates, and the value of the home your buyer wishes to
was appropriately named the HECM for purchase.
Purchase.
EXAMPLE
HECM for Purchase Loan
How Does It Work? Your client, a homeowner age 65, sells their
existing home with net proceeds of $450,000.
A HECM for Purchase loan combines the STEP 1
homebuyer’s one-time initial down payment Purchase a New Home
with proceeds from the HECM for Purchase Your client finds a NEW home for $300,000.
loan to complete the purchase. The down Use $168,738 as a down payment.
payment must come from the homebuyer’s
existing assets (such as a savings, checking, Use $144,600 from a HECM for Purchase loan to
complete new home purchase.
retirement account, or equity from the sale of
the buyer’s previous home). STEP 2
+$168,738 Down Payment
Although the required down payment for +$144,600 HECM to Complete Purchase
a new home financed with a HECM for
Purchase may often be larger than that $300,000 (plus closing costs)
for a traditional mortgage, the HECM for
Purchase provides the buyer the option STEP 3
of no monthly mortgage payments, $281,262 at your client’s disposal and no monthly
as long as the loan terms continue to mortgage payments.*
be met, such as paying property taxes, *Monthly Mortgage Payment $0. Borrower must continue to pay property
homeowners insurance, HOA fees, and taxes, homeowners insurance, and home maintenance costs.
home maintenance costs.
This example is based on the youngest borrower age 65, Annual Percentage Rate of 5.195%, home purchase price of
$300,000, IMIP of $6,000, origination fee of $5,000, and estimated closing costs of $2,338. HECM fixed as of March 2021.
