What is a HECM for Purchase?
A HECM for Purchase is a type of reverse mortgage that allows seniors to buy a new primary residence using the equity in their current home. Unlike a traditional mortgage, where the borrower makes monthly payments to the lender, with a HECM for Purchase, the borrower does not make any payments until the loan is due. Instead, the loan is paid back when the borrower sells the home, moves out permanently, or passes away.
Eligibility Requirements
To be eligible for a HECM for Purchase, you must be at least 62 years old and use the new home as your primary residence. You must also have enough equity in your current home to cover the down payment on the new home. The amount of equity you need will depend on the price of the new home and the loan amount you are applying for.
How it Works
When you apply for a HECM for Purchase, you will work with a lender to determine the loan amount you are eligible for based on your age, the value of your current home, and the price of the new home. The loan amount is calculated based on a formula that takes into account your age, the value of your home, and the interest rate.
Once you are approved for the loan, you will use the proceeds from the sale of your current home, along with the loan proceeds, to purchase the new home. You will not make any monthly mortgage payments, but you will be responsible for paying property taxes, homeowners insurance, and any other applicable fees.
Benefits of a HECM for Purchase
There are several benefits to using a HECM for Purchase to buy a new home. First, it allows seniors to purchase a new home without having to make monthly mortgage payments, which can help free up cash flow and provide financial flexibility. Second, it allows seniors to move into a home that better suits their needs, such as a home with fewer stairs or closer to family. Third, it can help seniors preserve their savings and retirement funds by using the equity in their current home to purchase a new one.
Drawbacks of a HECM for Purchase
There are also some drawbacks to using a HECM for Purchase. First, the loan may have higher fees and closing costs than a traditional mortgage. Second, the interest rate on the loan may be higher than a traditional mortgage. Third, if the borrower decides to sell the home, move out permanently, or pass away, the loan must be paid back, which may result in less equity for heirs.
In addition, the borrower must continue to pay property taxes, homeowners insurance, and any other applicable fees. Failure to pay these fees could result in defaulting on the loan and losing the home.
A HECM for Purchase can be a useful tool for seniors who want to purchase a new home without having to make monthly mortgage payments. However, it's important to understand the eligibility requirements, how the loan works, and the potential benefits and drawbacks before making any decisions. It's also important to work with a reputable lender who can guide you through the process and help you make informed decisions about your financial future.