Home Equity Conversion Mortgage (HECM) is a reverse mortgage program.
Homebuyers at least 62 years old can purchase a home without the burden of monthly mortgage payments.
With the reverse mortgage purchase loan. Buy more home for your money and keep more of your money in your pocket!
While HECM loans have been around since 1989, the US Department of Housing and Urban Development (HUD) approved the use of these loans to finance the purchase of a new primary residence in January of 2009 when someone at the FHA noticed that many people age 62 or older were buying new homes and then within a year or two, applying for an HECM (or Reverse Mortgage) to pay off their mortgage.
By allowing the use of HECM loans to finance a home purchase in a single transaction, HUD helps homebuyers save a considerable amount of money on the fees that are part of every mortgage transaction.
The Home Equity Conversion Mortgage (HECM) for Purchase was created by Congress in 2009 to streamline home-buying transactions and cut costs. Before, seniors would buy a new home, incurring closing costs, and then take out a reverse mortgage on the new home, triggering new closing costs. The HECM for Purchase rolls this into one transaction and one set of closing costs.
In a nutshell, the HECM for Purchase program is an aged-based mortgage backed by the FHA for folks aged 62 and older. Unlike a traditional mortgage, monthly payments are deferred and the loan balance increases over time. Because the loan is backed by the FHA, neither the borrower(s) nor their heirs are personally liable for the debt.
It’s actually very simple…let’s say you use a HECM to purchase your dream home and decide to move in 10 years. When you sell your home you would receive 100% of the net proceeds after paying off the loan balance at the time of the sale. This is exactly how a traditional mortgage works.
The primary benefit of using a HECM comes into play during your living years in the fact that you are not paying a monthly payment to the mortgage company, thereby increasing your monthly cash flow.
The secondary benefit is for your heirs. What if at the time of your passing your loan balance is greater than the value of your home — what happens?
In a traditional mortgage scenario your heirs would be forced to sell the home at a loss and cover the difference. The terms of a HECM program mandates that neither you nor your heirs are personally liable to cover the difference if your home is sold for a loss. Simply put, it’s not your problem and no one is coming after your estate for a settlement
Mortgage Insurance Premium (MIP) ensures the amount owed on the loan can never be more than the value of the home at time of sale
Lender may only look to the value of the home for repayment; no other assets may be attached if the loan balance grows beyond the mortgaged home value (non-recourse loan)
At what point must reverse mortgage counseling be completed? Counseling is Required Prior to Completing the Loan Application and Opening Escrow!!!
All borrowers and POA's must receive counseling and the Counseling Certificate issued prior to starting the Loan process.
Is New Construction acceptable?
Yes, as long as a Certificate of Occupancy (CO) has been issued and property ready to occupy. For the HECM, the CO must be issued prior to the loan application transaction.
Down payment requirements are higher than traditional mortgages because there must be equity available for interest to accrue over the owner’s lifetime as no monthly loan payments are required.
What must be included in the purchase agreement or contract of sale?
FHA Mandatory Clause & FHA Real Estate Certification (we will provide these documents to you)
Language indicating Seller is responsible for completing and paying for required repairs prior to closing.
A Contract of Sale, fully executed with signatures of all parties and all amendments signed and initialed.
All borrowers and POA’s must receive HUD Reverse Mortgage Counseling either in person or over the phone and provide the signed counseling certificate prior to opening escrow.
With the HECM program the house qualifies for the FHA loan, not the borrower’s assets, job, credit or financial history. All that is required is the youngest borrower is at least 62 years old and has the required down payment. The property MUST be the borrower’s primary residence. He/She may not vacate it for more than 6 months in a calendar year.
You can lose your home if you do not pay property taxes, HOA or Home Owners Insurance. You may also lose your home to mechanics lien- outstanding bills from contractors
A senior may buy a new principal residence with less upfront cash than typical full cash purchase. When your new home purchase is complete there will be NO MONTHLY PAYMENTS to make for as long as you live in your home. The amount of money you will need to bring to the closing will be based on the home purchase price, your age, interest rate, and the maximum lending limit. Contact loan specialist for details.
You can live in your home without making a monthly mortgage payment.
You can never owe more than the value of the home.
Relocate to a home more suitable for your retirement.
Property remains in your name or your living trust.
It's easier to qualify because no mortgage payments are required.
With a Conventional Mortgage:
The borrower must personally qualify for the loan
The borrower must have an acceptable credit history
The borrower must have sufficient assets and at least 2 years of job tenure
The borrower must have the right DTI (debt to income ratio) just to be considered for the loan
With a Reverse Mortgage for purchase:
The house qualifies for the loan
Credit history is not used to qualify the borrower
The borrower must be at least 62 years of age and have the down payment
The HECM FHA loan program link can be found by a search with "hecm loan"
Seniors looking to downsize to a smaller home may search on these keywords:
This mortgage program allows you to use your money to select what you want to do instead of having all your money tied up in your home