Home For Purchase

What is a HECM Home for Purchase (H4P)?

An H4P is designed for the senior homeowner who may be downsizing and/or wants to pay cash for their next home and does not want monthly mortgage payments. Their amount of available cash may make them think they are limited to the home they can purchase or the area they can move to. 

 

The H4P changes their options since the amount of cash required is only 45-55% of the new home’s purchase price. The other 45-55% is paid to the seller with a HECM Reverse Mortgage. The seller receives 100% of their agreed-to selling price and the homeowner retains 45-55% of what they thought they were going to use to purchase their new home. 

 

The H4P offers the homebuyer three major opportunities. 

 

  1. Since they are using only 45-55% of their available cash when purchasing their new home, they can consider a more expensive home.

  2. They can consider a neighborhood they had thought they couldn’t afford.

  3. They have available cash to remodel or enhance their new home or for meeting other needs.

Unlike a traditional mortgage, there are no monthly mortgage payments for the life of the loan, which can help boost your cash flow. You own the home as long as you live in it. The loan becomes due if you pass away; sell your home; no longer live there as your primary residence, or fail to meet your responsibilities to maintain the property, purchase homeowners insurance, and pay property taxes.

 

What kind of home can you buy? Single-family homes, townhomes, and FHA-approved

condominiums are eligible under the HECM for Purchase program. The home must be your

primary residence.

How does it work? The HECM for Purchase program requires an upfront investment (down payment) from the buyer of about 45% to 55% of the purchase price. The down payment must come from assets you already own – such as money from the sale of a current home or investment or funds you have in a checking, savings, CD, or retirement account-not another loan.

 

How is it different? 

Traditional Mortgage: Limits the amount you have to invest upfront, and lets you build

equity over the life of the loan. However, the monthly principal and interest payments

reduce your cash flow and can be an unwelcome financial burden.

 

Reverse Mortgage: The minimum required investment is based on the youngest borrower. 

To calculate a buyer’s minimum required investment, we take the value of the home

being purchased (the sales price or appraised value, whichever is less), and subtract the

available HECM loan proceeds. It generally works out to about 45% to 55% of the sale price. This calculation is determined by the Department of Housing and Urban Development (HUD). We then subtract the HECM loan closing costs.


   

 

Home for Purchase: Requires no monthly principal and interest payments throughout the life of the loan. Interest and fees are added to the HECM loan balance so that it increases over time, rather than decreasing. As with any home-secured loan, you remain responsible for property taxes, insurance, and home maintenance.

Example (**Based on 50% of the Purchase Price)

     

Value of Home Being Purchased……........................................................... $300,000

HECM Loan.................…….................…..................................................... $150,000**

HECM Loan Closing Costs (varies)…........…................................................. $    9,000

FHA Insurance (2% of Appraisal)…..............…............................................. $    6,000

Available HECM Loan Proceeds applied to the purchase............................. $135,000**

Buyer’s Minimum Required Investment for a $300,000 home reduces to.... $165,000