HECM for purchase began with the passage of the Housing and Economic Recovery Act of 2008. Before 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 through traditional means, establish their residency in the home, and then refinance with a HECM if desired.
Some baby boomers continue to reside in homes that are no longer ideal. Unfortunately, they are unaware of a home financing option that was built specifically for them – the Home Equity Conversion Mortgage for Purchase, or HomeSafe for Purchase, FARs proprietary reverse mortgage for purchase.
Older homeowners often find themselves wanting (or needing) to RELOCATE to be closer to family members, DOWNSIZE to a more manageable home, or even UPSIZE to a retirement dream home on the beach, golf course, or active adult community.
We often receive phone calls that highlight the need for this program, such as:
- “My grandmother wants to move south to be closer to her kids and grandkids.”
- “With my knee and hip problems, I need a single-story home, preferably one that requires little maintenance.”
- “I want to live near my friends in a 55 and over community on a golf course.”
When physical limitations become a reality, or when individuals desire a closer connection to family, a move may become necessary. The reverse mortgage can help them move AND keep more money in their pockets.
But how does it work?
With a traditional reverse mortgage, the lender offers a homeowner a percentage of the home’s value that can be used as needed. With a reverse mortgage for purchase, HECM for Purchase, however, those reverse mortgage funds are applied to a new home’s sales price. Depending on the age of the youngest participant, the lender is generally able to contribute 40% to 65% of the purchase price.
As always, no monthly principal and interest payments are required, and the homeowner gets to retain title and ownership of the home.
Most ideal purchase candidates are selling their current homes and relocating. If they use the HECM for Purchase to finance a large portion of the sales price, the homeowners can retain more cash reserves, providing an excellent opportunity to supplement retirement savings.
What’s in the fine print?
Reverse Mortgages are offered for “PRINCIPAL” residences only. This means that the homeowner must occupy the home, and the HECM for Purchase cannot be used for 2nd homes or investment properties. The borrower must occupy the home within 60 days of closing.
Because this loan product is federally insured, the HECM for Purchase will always require upfront and ongoing, Mortgage Insurance Premiums (MIP).
Lastly, please be aware that sometimes mistakes are made when a Realtor writes a sales contract for a HECM. HUD still restricts most forms of seller-paid closing costs for HECMs. So the Realtor must work with an experienced reverse mortgage professional who can guide everyone through the process.
Oregon Only:When the loan is due and payable, some or all of the equity in the property that is the subject of the reverse mortgage no longer belongs to borrowers, who may need to sell the home or otherwise repay the loan with interest from other proceeds. FAR may charge an origination fee, mortgage insurance premium, closing costs and servicing fees (added to the balance of the loan).·The balance of the loan grows over time and FAR charges interest on the balance.· Borrowers are responsible for paying property taxes, homeowner’s insurance, maintenance, and related taxes (which may be substantial). We do not establish an escrow account for disbursements of these payments. A set-aside account can be set up to pay taxes and insurance and may be required in some cases. Borrowers must occupy home as their primary residence and pay for ongoing maintenance; otherwise the loan becomes due and payable. The loan also becomes due and payable (and the property may be subject to a tax lien, other encumbrance, or foreclosure) when the last borrower, or eligible non-borrowing surviving spouse, dies, sells the home, permanently moves out, defaults on taxes, insurance payments, or maintenance, or does not otherwise comply with the loan terms. Interest is not tax-deductible until the loan is partially or fully repaid.
©2020 Finance of America Reverse LLC is licensed in 50 states and D.C. | Equal Housing Opportunity | NMLS ID # 2285 | www.nmls.consumeraccess.org | 8023 East 63rd Place, Suite 700 | Tulsa, OK 74133 CNot all products and options are available in all states | Terms subject to change without notice | AZ Mortgage Banker License #0921300 | Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act | Georgia Residential Mortgage Licensee | Illinois Residential Mortgage Licensee | Kansas Licensed Mortgage Company | MA Lender/Broker #MC2855 | Licensed by the Mississippi Department of Banking and Consumer Finance | Licensed by the New Hampshire Banking Department | Licensed by the N.J. Department of Banking and Insurance | Licensed Mortgage Banker — NYS Banking Department where Finance of America Reverse is known as FAReverse LLC in lieu of true name Finance of America Reverse LLC | Rhode Island Licensed Lender | HUD HECMS REQUIRE PAYMENT OF INITIAL AND PERIODIC MORTGAGE INSURANCE PREMIUM.