Reverse Mortgage for Purchase

What is a HECM For Purchase (H4P)?

The Home Equity Conversion Mortgage is a type of Reverse Mortgage that is regulated by HUD and insured by FHA.

This type of mortgage can be an excellent choice for purchasing a new home!

The reverse mortgage will be held on your newly purchase home as your primary residence.  The down payment you will need to bring to closing is usually between 30-70% of the purchase price.

Your down payment is larger because you are not required to make principal and interest payments.

Why pay the full price in cash or take out a traditional mortgage that requires principal and interest payments?

A Home Equity Conversion Mortgage For Purchase (H4P) allows you to finance a portion of the purchase price, without having to make any monthly repayments for as long as you live in the home. You are still required to pay the home’s property taxes and homeowners insurance and maintain the home.

With a HECM For Purchase you may be able to :

*afford a larger or better equipped home

*spend less cash and preserve retirement savings

*increase you home buying options

Reverse Mortgage for Purchase Summary

For those who are age 62 or better, housing costs can be one of the biggest expenses throughout retirement. Many people are not aware that someone over 62 can purchase a home with the Federal Housing Administration (FHA) insured reverse mortgage loan, commonly referred to as the H4P.  The H4P is a mortgage with some very special features.

At age 62, the H4P requires roughly a 60% down payment. For example, if you wish to purchase a $400,000 home, your estimated down payment would be $240,000*. The H4P would cover the $160,000 balance and you, the borrower, would still own the home in your name and have no mortgage payments! You must still pay taxes and insurance plus homeowner association dues, if applicable, and maintain the home.

Note: For illustration purposes only. Closing costs and other settlement costs are additional.

Compare this to a couple of other options when purchasing a home.  You could pay the full purchase price in cash, in which case you would have the total amount tied up in an illiquid asset (home equity). Your money would be stuck in your home until you sold the home, moved or passed away.  You would not have a mortgage payment, but that is also the case with the H4P. You must still pay taxes and insurance and maintain the home.

So your options are: 1) finance with a traditional forward mortgage with monthly mortgage payments or; 2) pay the purchase price upfront, or; 3) finance with an H4P loan and not be required to make a monthly mortgage payment (you must still pay taxes and insurance and maintain the home).

Most, but not all, reverse mortgages today are federally insured through the Federal Housing Administration’s Home Equity Conversion Mortgage (HECM) Program. This advertisement talks about HECM loans only.

*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.