The Financing You Need to Buy the Home You Really Want in Retirement.
If you are 62 or older, you may be thinking about buying a new home that better meets your needs in retirement. Maybe you have your sights set on a home that’s closer to your children, or one that will better accommodate your needs as you age, or one that is breathtakingly beautiful and near the ocean.
You may also be thinking that you cannot afford to buy such a home, or that you don’t want to drain your nest egg to be able to afford it. Before you decide, consider the flexible financing option called a HECM for Purchase loan—which offers some distinct advantages over a traditional mortgage or paying all cash.
What is a HECM for Purchase (H4P)?
A Home Equity Conversion Mortgage—also known as a reverse mortgage—for Purchase (H4P) is a Federal Housing Administration (FHA)-insured home loan that is designed to help homebuyers age 62+ to buy a new home that better meets their current lifestyle.
Use our HECM for Purchase (H4P) Calculator to instantly get an estimate
An H4P can potentially help you to:
- Increase your purchasing power to buy the home you really want
- Free up cash flow—you will not be obligated to make monthly mortgage payments. You still must maintain the home and pay taxes and homeowners insurance.
- Extend the life of your productive retirement assets*
- Qualify for a mortgage in retirement. There are minimal income and credit requirements.
Eligibility
- You must be 62 years old or older
- You must meet minimal credit and property requirements
- You must receive reverse mortgage counseling from a HUD approved counseling agency
- You must not be delinquent on any federal debt
- Home must be a primary residence
- Property must be a single-family home, a 2- to 4-unit dwelling, or FHA-approved condo
How the product works
Down payment. The product allows you to combine a down payment from your own funds (e.g., proceeds from the sale of your current home) with the proceeds from the H4P loan to complete the purchase. The amount that you would be required to put down is roughly 40 percent to 60 percent of sales price of the home you are buying. The required down payment is determined by the age of the youngest borrower, the current interest rates, and the purchase price of the new home.
Repayment flexibility. You have the option to repay as much or as little of the loan balance each month as you would like, or you can make no monthly mortgages payments at all. The FHA guarantees that as long as you meet your loan obligations (which include maintaining the home and paying for property taxes and homeowners insurance), no repayment of the loan is required until the last borrower moves out or passes away. When the loan becomes due, you or your estate has up to 12 months to repay the loan balance, which is typically achieved by selling the home.
Increase your purchasing power
This information is provided as a guideline and does not reflect the final outcome for any particular homebuyer or property. The actual reverse mortgage available funds are based on current interest rates, current charges associated with loan, borrower date of birth (or non-borrowing spouse, if applicable), the property sales price and standard closing cost. Interest rates and loan fees are subject to change without notice. Following the closing of the home purchase, no further principal or interest payments will be required as long as one borrower occupies the home as their primary residence and adheres to all HUD guidelines of loan. Borrower must remain current on property taxes, homeowner’s insurance (and homeowner association dues, if applicable), and home must be maintained.
Upsizing
James and Mary, who are 62 and 59, want to move to a newly constructed home to retire. They want to keep the same size home they currently have, but home values are more than double in the new community compared to where they live currently. A Realtor® recommended to them that with a reverse mortgage for home purchase, they could buy a house similar to the one that they currently live in.
CLIENTS COULD SELL THEIR HOUSE FOR $391,400 AND PURCHASE A NEWLY
CONSTRUCTED HOME FOR $600,000.
House and story are for illustration purposes only. House
may not be available for purchase.
Downsizing
Cindy, who is 62, is selling her current home that is owned free and clear to move closer to her grandchildren. She would like to downsize when she moves and be able to set up an annuity for her grandchildren to help pay for college*. The community she would like to move to is more expensive than her current one. A reverse mortgage can allow her to purchase a home in the new community and be able to have money left over from the sale of her current house.
CLIENT COULD DOWNSIZE HER $400,000 HOME, PURCHASE A $375,000 HOUSE AND HAVE $170,000 TO SPEND ON AN ANNUITY.
House and story are for illustration purposes only. House
may not be available for purchase.
DID YOU KNOW? You may be able to close on an H4P loan from Fairway in as little as 15 days*
*15-day close is not available in all states and requires receiving a non-contingent appraisal
within ten days from the appraiser.
Frequently Asked Questions
Can a reverse mortgage be used to purchase a home?
Yes. You can buy a new primary residence by putting as little as 45% to 65%* of the purchase price down from your own funds — the remainder is funded by the Home Equity Conversion for Purchase (H4P) loan.
Learn more about how you can double your home-buying power.
*The required down payment on your new home is determined on a number of factors, including your age (or eligible non-borrowing spouse’s age, if applicable); current interest rates; and the lesser of the home’s appraised value or purchase price.
Is a reverse purchase the same as a reverse mortgage?
With a Home Equity Conversion Mortgage (reverse mortgage), you are borrowing against built-up equity in your existing home. With a reverse mortgage for purchase (Home Equity Conversion Mortgage for Purchase), you are purchasing a new primary residence and providing the required equity by way of a down payment at closing from your own funds. Once the loan is established, the benefits and features of the two products are essentially the same.
Is a HECM for Purchase a good idea?
A Home Equity Conversion Mortgage (HECM) for Purchase loan could help you to increase your purchasing power to buy and better afford your ideal home. That said, every older-adult homebuyer has different needs, so working with a reverse mortgage professional is a great way to gauge if an HECM for Purchase loan might be the best way for you to fund the purchase of your next home.
How does a HECM for Purchase work?
The HECM for Purchase loan program is designed to help seniors to more affordability downsize, right-size or upsize into a home that suits them better in retirement. You can purchase a new home by putting as little as 30 percent to 70 percent* of the purchase price down from your own funds — the remainder is funded by the H4P loan. While an HECM for Purchase loan is a mortgage, the borrower is not required to make monthly principal and interest mortgage payments.
You can defer repayment of the loan balance so long as you live in the home, no matter how long that may be. You just need to reside in the home as your primary residence, maintain the home, and pay the property charges, like taxes and insurance. Learn more.
*The required down payment on your new home is determined on a number of factors, including your age (or eligible non-borrowing spouse’s age, if applicable); current interest rates; and the lesser of the home’s appraised value or purchase price.
Do I own my home with a HECM for purchase?
Many people believe the bank gets the home in the transaction. The borrower still retains ownership of the home over the life of the loan. The HECM for Purchase loan is simply secured with a lien, just like a traditional mortgage or a home equity line of credit.
Can I make voluntary prepayment toward the HECM for Purchase loan balance?
Yes, prepayments can be made to the loan balance at any time. There may be certain tax advantages* for making prepayments.
*This content does not constitute tax advice. Please consult a tax advisor regarding your specific situation.
Can I buy a flipped home with a HECM for Purchase loan?
The sales contract must be signed more than 90 days from the seller’s purchase of the property.
Is there a Mortgage Insurance Premium (MIP)?
With a HECM for Purchase, you will be required to pay upfront and ongoing mortgage insurance premiums. These premiums are usually financed into the loan and not paid out of pocket – their purpose is to fund the non-recourse feature, which protects you or your heirs from being stuck with a bill if your loan balance is higher than what your home sells for when the loan matures and is due and payable.
I want to buy a new construction home — can I start the application before the home is completed?
Yes. You can complete the HECM for Purchase application and begin the process of securing the loan, but the appraisal, and consequently the loan closing, cannot happen until the Certificate of Occupancy has been issued.
What source of funds (money) are allowed when you purchase a home with a HECM for Purchase loan?
The money must come for your liquid assets (e.g., bank accounts, CDs, retirement accounts) or from the documented sale of other assets you may have (your present home for example).
Why is my down payment higher with an H4P loan compared to a conventional mortgage?
Your down payment is higher initially because you will not be required to make monthly mortgage payments (except for property-related taxes and insurance). With a traditional mortgage, you could potentially lose more in cash flow over the years because of the consistently required payments.
Let’s start a conversation.
Our experienced team of Reverse Mortgage Planners will help you to understand the HECM for Purchase (H4P) product, so you can make an informed decision about whether it is the right financial solution for you.
*Source: https://www.cbsnews.com/news/best-reverse-mortgage-companies-2023/