If you are 62 years old or older, and thinking about moving, then you might want also to be thinking about a HECM for Purchase Mortgage. A HECM for Purchase Mortgage is a Reverse Mortgage that can be used to buy a new home regardless of whether you currently own your home.
Using a HECM for Purchase? How does it work?
A reverse mortgage, or HECM (Home Equity Conversion Mortgage), is a way to turn the equity in your home into tax-free cash without having to make any monthly mortgage payments. Instead of monthly payments, the loan is repaid in one lump sum when the last borrower leaves the home. As part of the loan, the borrower is required to continue paying property taxes and insurance and maintain the home. Already used by about 1 million households across the United States, a HECM Reverse Mortgage is a Federal Housing Administration (FHA) government insured loan that enables seniors to gain financial independence from their ever increasing living expenses.
The HECM for Purchase Loan allows borrowers 62 years or older to use cash, or the equity from the sale of a previous home to purchase their next primary residence without required monthly mortgage payments, except for taxes, insurance, and general maintenance. Regardless of how long you live in the home or what happens to your home’s value, you only make one, initial investment (down payment) towards the purchase.
When does it make sense to use a HECM for Purchase?
A Home Equity Conversion Mortgage makes sense for seniors looking to use the equity in their current home to purchase a new home of greater value, or to purchase a home of lesser value and use the remaining cash in whatever way they wish. The following are three examples of how a HECM For Purchase works:
Cindy, who is 62, and living in Georgia, is selling her home that is free and clear for $157,000 and wants to buy a new home close to her daughter in Massachusetts. The realtor showed her three properties priced at $157,000 close to her daughter, but they were all too small and old. The next day she drove around her daughter’s neighborhood and saw an open house sign of what could be her dream home. Cindy absolutely loved it but couldn’t afford the $300,000 price tag. The Realtor told her that with a Reverse Mortgage, she may be able to make her dream come true.
Cindy was able to buy a $300,000 home with no monthly payments with $157,000.
Fred and Bernice, who are both 75, are both avid golfers and want to purchase a house on a golf course for $700,000. They currently live in a $650,000 house that has a $50,000 mortgage. But they are nervous about taking money out of their retirement nest egg, and also of tying up all of their equity in a new home.
They met with a Realtor friend who recommended they sell their current house and use only a portion of that money, along with a HECM For Purchase to buy the property on the Golf Course they wanted, while having funds left over to increase their retirement funds.
Fred and Bernice sold their home and were able to pay off the mortgage, buy a $700,000 golf course home with $340,000. with no monthly mortgage payments, and deposit $260,000 into their retirement account.
Norm, who is 75, was sitting at the coffee shop with some of his investment buddies. He wants to downsize his $400,000 property and, with the remaining money, set up an annuity to help his grandchildren pay for college.
Norm bought a $300,000 house with $174,000 down with a HECM loan that has no monthly principal and interest payments, (he still pays taxes, insurance, and maintenance). He put the remaining $226,000 into an annuity to pay for his grand kids college.
Need more information about how a HECM for purchase might help you achieve your financial goals? Email or call Bonny Gilbert, Esq., Reverse Mortgage Specialist, Fairway Independent Mortgage Inc., 617-645-8907; firstname.lastname@example.org.