It was 2008 when HUD announced the Home Equity Conversion Mortgage, or HECM could be used by Seniors aged 62 and above to buy a new Home. The HECM is the only Government Insured Reverse for Purchase in the market today and is offered through the safety and oversight of the FHA Program.
Based upon recent studies conducted by Merrill Lynch of America, the four most common reasons people move in or near retirement are:
- Wanting to be Closer to Family
- Needing to Reduce Housing Expenses
- A Change in Health or Mobility Status
- Change in Marital Status, Including the Loss of a Spouse
In my 40-year career in housing, I’ve learned no matter the reason for your move, “WHERE you choose to move, will be the single most important Safety and Quality of Life decision you will make”. So, as you think about a move do your homework, and consider your options.
Besides Why, Where and What you will buy, the next most critical question will be: HOW you are going to pay for it?
For starters, let me ask you this question: “What’s the difference between the PRICE of a Home, and the COST of that Home?
Before we illustrate the answer and consider that there are only three ways to pay for a Home, you’ll need some basics on the FHA Insured, Home Equity Conversion Mortgage, known as a HECM For Purchase.
Keep in mind, no matter which way you choose to pay for your new home, you will be responsible for paying your Property Taxes and Homeowners Insurance.
So, with a HECM for Purchase:
- You will have no required Monthly Payments
- You must maintain, and live in the home as your primary Residence
- You can buy a single-family home, a duplex, triplex, or a quad, or even a townhome or FHA approved condo
Now, let’s break down the three possible ways to pay for a new Home, and explore the difference between the Price and the Cost.
- The Traditional Mortgage loan, putting down 20% and making monthly payments for 10, 15, 20 or 30 years.
- Is to Pay All Cash, in order to avoid carrying a monthly payment into your Elder Years.
- Use the FHA Insured HECM for Purchase, to avoid monthly payments, and possibly increase your buying capacity.
As an example, let’s look at the case for Deborah who is looking to purchase a $600,000 home and she is comparing the cash out of pocket costs of these three options.
#1. This scenario has Deborah choosing a traditional Mortgage loan, making a 20% down payment of $120,000, at an Interest Rate of 5%, an APR of 5.08%, over 30 years. She will be making 360 payments of $2,577.00 per month…meaning this home would cost her $1,047,628.00 in Cash Outlays.
#2. Deborah could choose to make an All Cash Purchase…which is easy to see, she will Spend $600,000.00 in cash out of pocket.
#3. Here Deborah decides to go with an FHA HECM for Purchase which will require a down payment of $369,000.00, and do a Reverse Mortgage Loan of $231,000.00. In this scenario, she is only out of pocket a total of $369 K, which means she can hold onto all the rest of her $230 K in cash.
As long as Deborah pays her Taxes and Homeowners insurance, lives in and maintains the home as her primary residence, she can stay in the home as long as she wants to, or sell it when she needs to…and, she will never have to make a Monthly Loan Payment.
So, to answer the question: The PRICE of the home is set by the Purchase Agreement between the Buyer and Seller…the real COST of your home will be determined by how you decide to pay for it.
This is just one illustration on the benefits of the HECM for Purchase, and there is much more to know about this versatile, FHA Retirement Home Loan.
To wrap up, consider this as you think about buying your dream home.
As you age, your Financial Security will be a matter of Cash Preservation. Your Freedom and Independence through every good year of life you have to live, will depend largely on Cash Flow and the net spendable dollars you control.
To learn more about how a HECM For Purchase would work for you, give me a call, and let’s find out how much of your hard-earned cash you can actually hold on to, as you dream about buying your next home.
I’m Paul Donohue, and I look forward to speaking with you soon.