H4P: HECM For Purchase

H4P

By Lynette Jorden

Every 100 days, a million baby boomers reach retirement age as reported by US News. In a recent study by Better Homes and Gardens Real Estate, 57 percent of retirement-age boomers don’t like their current home and 10 percent are planning a new home purchase within 12 months.

As a REALTOR in a retirement-rich state, are you looking for a way to set yourself apart from your competition? Having an alternative financing option for your clients who are 62 or older may help you gain that edge. Did you know that your qualifying clients can use a HECM for Purchase, aka reverse mortgage, to purchase a home? In 2008, Congress authorized a HECM for Purchase (H4P), which allows consumers 62 and older to purchase a new principal residence using loan proceeds from the reverse mortgage (current loan limit is $636,150). This new option eliminates the need for a buyer to use either their own cash or traditional financing to buy a house and later doing a HECM refinance to gain access to their equity. Simplifying the process into a single transaction makes the homebuying experience easier and it also eliminates two sets of closing costs.

Three Categories of Typical H4P Clients

• A buyer who does not want a mortgage payment or cannot afford a mortgage payment. This situation can apply to anyone considering retirement and moving who would be relying on the proceeds from the sale of an existing home to fund the purchase of their new home; however, they may not have enough equity to carry forward to do so without some sort of additional financing.

• A buyer who is moving from another state who wants to purchase a more expensive home or downsize into a more appropriate home that they can age-in-place.

• A buyer who wants to reserve some of their cash without compromising the value or quality of a new home. By being able to purchase their retirement dream home without depleting a large portion of their retirement savings and not be burdened with having to make monthly principle and interest payments can make this an attractive option.

H4P Obligations Equal Traditional HECM Refiance

You must continue making payments for property taxes, homeowner’s insurance, any homeowner’s association fees, and the cost for basic maintenances of the home, in order to avoid defaulting on the loan.

The borrower must physically occupy the home as their permanent residence within 60 days of purchase and for at least six months and one day a year. This means that a borrower could have a second home or take extended vacations to be with family or simply travel and enjoy life.

Income and credit qualifications apply as well.

Consumers using this program must have the financial means to pay the difference between the sale price of the property plus settlement costs, and the maximum amount they can draw on the HECM. This can be a 50 percent cash investment from the buyer depending on their age and the current interest rates. Unlike the old reverse mortgage product, the new HECM comes with many great changes and various consumer safeguards to include third-party counseling to ensure that buyers are well informed and comfortable when deciding to proceed.

The benefit to financing with a H4P is that instead of paying the loan back every month over time like a traditional mortgage, HECM repayment is deferred to when the borrower(s) no longer occupy the home as their primary residence and can be repaid with the proceeds from the sale of the home, to include accrued interest and insurance. FHA insures the HECM and the borrowers nor their heirs are responsible for any amounts owed above the value of the home. This way, senior borrowers on a fixed income can finance the purchase of a new home without the burden of having to make monthly principle and interest payments and senior borrowers who have more liquid assets can retain more of those to utilize for long-term retirement income.

H4P Financial Tools for Borrowers

• Avoid accessing long-term assets.

• Acquire a more fitting home.

• Remain in the home with no monthly principle and interest payments bringing peace of mind.

Take this opportunity to stand out. Contact me to learn more about this product and how it can apply to your business.


Lynette Jorden is a loan originator with V.I.P. Mortgage Inc. For more information, contact her at (480) 209-9524 or ljorden@vipmtginc.com.