This Little-Known Home Financing Tool May Be The Best for Senior Homebuyers

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This Little-Known Home Financing Tool May Be The Best for Senior Homebuyers

Most seniors have heard about reverse mortgages and their benefits. But did you know that a Reverse Mortgage can also be a powerful financial tool for buying a new home?

Traditional reverse mortgages have grown popular over the past several years, but there is a specific kind of reverse mortgage that has gained popularity recently: The Home Equity Conversion Mortgage (HECM) for Purchase.

While it’s nothing new to the Real Estate world, you might be surprised to learn that it has become an increasingly popular choice for seniors recently.

If you have clients with questions like, “What is an HECM for Purchase?” “How does it work?” “Why is it so popular right now?”

We’ve got answers.

What is the HECM for Purchase?

For starters, the HECM for Purchase is an FHA-insured financing option for seniors who are 62 and older who want to buy a new home.

Like with all reverse mortgages, they generally carry low-interest rates and are insured by the Federal Housing Administration (FHA). But the most popular feature is no “required” monthly payments.

What makes it better? Borrowers have the flexibility to treat it like a regular mortgage by making optional payments for as long as they can. Borrowers decide what to pay and when to pay.

As with any home-secured loan, buyers must keep current with property-related taxes, insurance, and maintenance for the loan to remain in good standing.

How does the HECM for Purchase work?

Seniors can buy a home by combining a one-time investment of funds (usually from the sale of a departing home) with loan proceeds from a HECM loan to finish the transaction. The home you are purchasing will secure the loan, just like traditional financing.

The one-time up-front investment is roughly 45% to 62% of the purchase price (depending on your age). Although the percentage could appear steep compared to a traditional mortgage, the HECM for Purchase will finance the rest of the home, and again, no monthly principal and interest payments are required for the life of the loan.

What are the benefits of the HECM for Purchase Option?

There are plenty of reasons for seniors to look into the HECM for Purchase, but here are just a few.

  • It can help support a retirement plan.

Seniors who sell an existing home may be able to save a good portion of the net sales proceeds from the departing home. Instead of using all of the funds to buy the home outright, they use only a portion. This is because the HECM for Purchase will contribute most of the purchase price of the new home.

  • Purchasing a home with the HECM would not be as much of a financial toll.

Buyers would be eliminating monthly principal and interest mortgage payments with the HECM for purchase. Not having a monthly payment is significant to monthly cash flow.

  • It gives seniors the flexibility to buy the house they want.

They can “right-size” the right home to match their lifestyle needs and age in place. Seniors can purchase single-family homes, 2-4 unit homes, townhomes, and FHA-approved condos with this HECM for Purchase option.

Is this the best time for the HECM for Purchase option?

At this rate, now would be the best time to do the HECM for Purchase option.

The HECM Purchase option gives seniors the convenience and flexibility to purchase a new home and give themselves financial stability.

Contact us today to learn more!