HECM stands for Home Equity Conversion Mortgage. As its name suggests, this type of loan allows the equity in a home to be converted into cash for use by the property owner. In the case of an HECM for purchase, the equity is leveraged to provide a better loan suited for the senior’s needs, while also eliminating the need for monthly mortgage payments. There is growing demand for HECM for purchase guides and information in California, primarily because these types of mortgages can be less stressful for the borrower, while also offering other important benefits.
If you are looking for more detailed HECM for purchase information, please feel free to get in touch with us. Our staff has years of experience when it comes to reverse mortgage products and services, and they would be happy to answer your questions. You can learn more about the reverse mortgage loan process in California by calling us at 800-791-5626 or contacting us online.
How an HECM for Purchase Works
An HECM for purchase loan is, in short, when a reverse mortgage is used as part of the purchase of a new primary residence. In a typical home buying situation, the buyer purchases the property by making one relatively large down payment, followed by monthly payments for the life of the mortgage. However, when a HECM for purchase is introduced into the equation, it becomes possible to buy a home where the large down payment is covered by the equity built up in another home that is being sold, or from savings and investments that have been accumulated over ones lifetime. In this way, seniors can downsize to a new home more suited to their needs, without needing to make monthly payments on their new home for as long as they live there as their primary residence.
For example, the borrower may be interested in purchasing a new home that costs $350,000. For the purchase to be made with a traditional loan, a down payment is required, while the remaining balance is made up of a loan with payments spread out over a certain number of years. If the borrower sells their existing home worth $500,000, and they are left with $250,000 after paying off their mortgage balance, they can use this money as a down payment toward the new home. However, this means that they will need to pay the remaining $100,000 in monthly mortgage payments.
In an HECM for purchase, the borrower takes out a reverse mortgage on the property he/she plans to purchase. This HECM can be used as a loan for the remaining $100,000 due on the new home. This structure can now leave additional money available for other expenses. As a result, they now get to live free of monthly principal and interest mortgage payments whilst also keeping money in their pocket.
Benefits of an HECM for Purchase
In the HECM for purchase example above, there are various benefits for the buyer:
- First of all, there is no need to worry about making monthly mortgage payments over many years, in order to complete the purchase of the new home. This takes away much of the stress that is usually present when buying property, and it allows for a higher quality of life as a result.
- Second, ownership of the property remains with the buyer. There is no need to transfer ownership to the lender in an HECM for purchase.
- Third, the borrower can live in the new home, as long as the regular insurance fees, taxes, and maintenance costs are paid. This is important, particularly for seniors, because once the buyer moves into the new home, there is no risk of disruption or forced transfer away from a friendly neighborhood, as long as these other obligations are met.
- Finally, this is also good for the children of the senior borrower or borrowers, because their parents have lower monthly expenses and potentially more disposable income, so the parents are less likely to have to depend on their children to make ends meet.
Learn More Information on HECM for Purchase Products
If you would like to get more information on how an HECM for purchase works and if this type of loan is right for you, please call us at 800-791-5626 or contact us online. We would be happy to help with all of your reverse mortgage loan needs.