By now just about every human being has heard of a Reverse Mortgage but did you know there is a Reverse Mortgage for buying a home? Yes, it is called a Reverse Mortgage for Purchase, also called a HECM for Purchase.
What the heck is a HECM?
A HECM is a fancy acronym for Home Equity Conversion Mortgage. Much the same as the Traditional HECM, a HECM for Purchase is insured by the Federal Housing Administration (FHA). Started in 2008, a HECM for Purchase allows senior home buyers the same advantages as the traditional HECM reverse mortgage with the added benefit of being able to purchase a new home.
How a HECM for Purchase Works
A HECM for Purchase is a tremendous financial tool for those seniors buying their new home. With the HECM for Purchase reverse mortgage the home buyer provides a down down payment with the proceeds of their home sale or savings. Typically, the required down payment would be 45-50% of the purchase price.
What’s the benefit of a HECM for Purchase?
One benefit to utilizing a reverse mortgage to purchase a home is that it offers the senior the flexibility to make their monthly mortgage payment or they can defer some or all payments until the loan comes due. Having this cash flow every month can be a major retirement game changer.
Another benefit to utilizing a reverse mortgage for purchase, instead of paying cash would be it allows your money to stay outside of your home for emergencies or any unforeseen retirement need.
Lastly another major benefit would be the Line of Credit growth. This is probably the most misunderstood part of a Reverse Equity Line. Any un-used portion of the Line of Credit grows at rates such as 5 or 5.5%. This Line of Credit growth makes a good case for paying the mortgage payment early in retirement and utilizing this this line of credit growth later in retirement.
An example of Credit Line Growth
Lets say you start with a Line of Credit at age 62 of $135,000. By age 70 that Line of Credit has grown to $187,000 of available credit. By age 80, that credit line has grown to $285,000 to use for whatever purpose the retiree needs. Again nothing on the line, if used, has to be paid back until the homeowner moves out of the property or passes away.
Of course one can wait until age 70 or 80 to take out a reverse but one would lose that whole credit line growth from the prior years and you also fall into the current reverse lending limits of the later years should things change with qualifying. On average, this would result in $100,000 less in available credit line throughout retirement.
We would love to review your HECM for Purchase options. Make sure you contact us and we will gladly assist with your HECM for Purchase options and how it can solidify your retirement.