What is the HECM for Purchase (H4P)?
A Home Equity Conversion Mortgage (HECM) for Purchase is a reverse mortgage loan that allows homeowners age 62 and older to buy a home using a larger down payment to build the necessary equity in the home rather than using all their available assets.
Purchase a New Home with No Monthly Payments*
What is a Home Equity Conversion Mortgage for Purchase (H4P)?
The H4P program allows buyers to combine a down payment with loan proceeds to purchase a new home and not make a loan payment* as long you they live in the home.
H4P can increase your purchasing power, and make it easier to afford the home you want. The most important feature of this type of loan is that there is NO personal financial liability for the buyer(s), their heirs, or their estate for any loan balance that exceeds the value of the home when it is being sold to repay the loan.
H4P Eligibility Requirements Set by the Federal Government
- You must be at least 62 years old. (This applies to all co-owners listed on the home’s title)
- The home you are buying must be your primary residence and must meet FHA/HUD guidelines. Eligible properties are single-family homes and FHA- approved condominiums.
- You must have your down payment or “required investment” from an allowable source. While certain restrictions apply, these are generally funds you have had for at least 90 days or the sale of an asset that you already own. The most common sources of the down payment money are proceeds from the sale of a current home or money the buyer has in a checking, savings, CD, retirement or investment account.
Using the Home Equity Conversion Mortgage (H4P)
Home Equity Conversion Mortgages/Reverse Mortgages are normally used by Seniors to remain in their homes while drawing money from their home.
- Seniors age 62 and over buying a home as their primary residence make a down payment and then use a Reverse Mortgage to finance the remaining purchase price.
- No monthly payments are required*; interest accrues on the mortgage over time and balance is paid when the house is sold. Just as with a traditional mortgage, any remaining equity at the time of sale goes to the homeowner or his or her estate.
Purchasing seniors can typically borrow between 50 and 60% of the sale price up to the FHA maximum of $625,500. Loan to Value is determined by the age of the youngest borrower.
Reverse mortgages are incredibly flexible borrowing tools. Seniors can choose to borrow the maximum allowed at closing or borrow less and leave a portion of the loan in a line of credit for future use. Interest is only charged on the funds drawn similar to a traditional Home Equity Loan. Money not drawn in the line of credit is guaranteed to grow at the same adjustable interest rate that is being charged on the line of credit, even if the home value drops.
Seniors that are retired may have trouble meeting the new underwriting requirements for regular mortgages, which are primarily based on income and not assets; while reverse mortgages have much easier income and credit requirements. A reverse mortgage allows seniors the option buy a different home to better suit their physical needs, be closer to family, or move to a warmer climate.
Many seniors will use the proceeds from the sale of their previous home or their investments assets to purchase a home. By using a Reverse Mortgage for Purchase to buy a home, seniors can reduce the amount of their down payment and help maximize funds in their investment accounts.
*Borrower is responsible for property taxes, homeowner’s insurance, HOA and property maintenance in order for the loan to remain in good standing. A HECM is a home-secured loan that must be repaid upon default or a maturity event, such as when the home is sold, all homeowners have passed away, or the last surviving borrower no longer lives there as their primary residence.