If you are close to retirement age and have been looking into downsizing your home or various refinance options to increase financial stability, you may have come across something called a HECM loan. So, exactly what is a HECM loan?
The HECM (Home Equity Conversion Mortgage) for Purchase loan option is for homebuyers who are age 62 or older. HECM is a type of Reverse Mortgage that allows the homebuyer to purchase their dream home without making any monthly payments. Depending on the buyer’s age, they will need to provide a down payment of anywhere from 35-50% of the purchase price and never make another mortgage payment for as long as they live in the home. There is also a refinancing option for those who wish to use the HECM loan program but want to stay in their current home.
Some advantages of a HECM loan over a traditional 30 year mortgage or paying cash are:
- Compared to traditional financing, you can increase your income each month by not having to make a mortgage payment.
- Under many circumstances, you don’t have to wait until your current home sells to use the program.
- Purchase your next home without depleting a large portion of your life savings.
- Interest gets added to loan balance.
- Closing costs are included in the mortgage.
- The HECM is the only program that if the home ever sells for less than the loan balance, neither the borrower nor the estate is responsible for paying the difference.
- Use money saved from no monthly mortgage payments to invest, travel, spend on family, or any unexpected expenses.
- Similar to paying cash, you are only responsible for paying property taxes, insurance, and any homeowner association fees, as well as maintain the property. However, with paying cash, you would put more money upfront for the same benefits as the HECM for Purchase.
What are the qualifications for a HECM loan?
- You or your spouse must be 62 or older.
- The home you are purchasing must be your primary residence.
- Per HUD guidelines, down payment funds must come from your verified assets, including, but not limited to traditional bank accounts, investments, 401K, CD’s, money market account, money made from sale of current home, or a gift.
What types of homes are eligible for the HECM for Purchase program?
- Single Family Home (existing or new construction)
- PUD (Planned Unit Development)
What are the homeowner responsibilities?
There are only a few items you will need to take care of once you move into your new home after closing. These include:
- Property Taxes
- Homeowners Insurance
- Flood Insurance (if applicable)
- Homeowners Association Dues (if applicable)
- General maintenance of the home
Other advantages of the HECM for Purchase program include:
- Asset protection
- Independent HUD counseling
- Title to home stays in borrower’s name
- No pre-payment penalty
- No maturity date
- You can stay in your home until the last borrower vacates
Each person’s financial and life situations are different so it’s a good idea to investigate all your options before choosing your next mortgage. If you are interested in learning more about the HECM for Purchase program, ask your lender if they offer HECM loans and have them go over the advantages and disadvantages of HECM versus other types of mortgages with you.
If you are interested in using the HECM for Purchase program to purchase a McKee home, please contact us at 910-672-7296 for more information or to set up an appointment to go over the program, answer any question you may have and find out what you can expect during the entire loan process.
If you are thinking about down-sizing and looking for a single-story or ranch-style home for ‘aging in place’, please visit our single story homes web page for floor plan and neighborhood information.