HECM for Purchase began with the passage of the Housing and Economic Recovery Act of 2008. Prior to this legislation, if a homeowner in retirement wanted to relocate, qualifying for the new home often proved difficult. They would have to be eligible to purchase a home though traditional means, establish their residency in the home, and then refinance with a HECM if desired.
– Understanding Reverse – Page 101
The ability to use a Reverse Mortgage to purchase a home is no longer “new”, yet the public is still in the dark. Clearly, the Home Equity Conversion Mortgage (HECM) is more versatile than anyone realizes. In fact, when I speak to seniors, financial planners, and even Realtors, the concept of purchasing a home with one is completely foreign. While I can’t cover all of the details in a blog, let’s cover some basics.
Older homeowners often find themselves wanting to, or needing to, relocate to be closer to family, downsize to a more manageable home, or even upsize to a retirement dream home on the beach, golf course, or active adult community.
A call I received this week is a common one; “My grandmother wants to move to the south to be closer to the kids and grandkids.” Having lived half my life in the north, I understand that moving to the south is attractive enough on its own. Yet, when physical limitations become a reality, or when individuals desire a closer connection to family, sometimes a move is needed.
In a HECM for Purchase, the lender will still be able to provide the same principal limit to the borrower as is customarily available with a Reverse Mortgage. Instead of giving the funds to the borrower, however, the funds are generally applied to the sales price of the new home. Depending on the age of the youngest participant, and the effective interest rate, a lender may be able to contribute principal limits of 30% to 75% of the home value toward the purchase of that home.
When selling a home and relocating, homeowners may find that this program allows them to have cash reserves upon relocating. Many will even use the remaining funds to supplement their retirement savings.
HECMs are specifically designed to be offered only for a borrower’s “Principal Residence.” This means that HUD will require the borrower to occupy the home within 60 days. Also, be aware that many mistakes can be made when the Realtor writes the sales contract. So make sure the Realtor understands HUD’s guidelines related to new construction and seller-paid closing costs for Reverse Mortgages.
Order my book today to learn more about how the Reverse Mortgage for Purchase allows older Americans to have more freedom with their housing. Understanding Reverse (2015) is the most comprehensive guide for answering your most common questions about Home Equity Conversions.