BLOG VIEW: What if I told you that you could buy a house with no mortgage payments? You'd think I was crazy, wouldn't you? Yet, this is exactly what the Federal Housing Administration (FHA) is letting senior homeowners do today – and it's not crazy at all.
The Home Equity Conversion Mortgage (HECM) for Purchase program is an FHA-insured home loan that lets homeowners over the age of 62 sell their home and use the equity to buy their next home. That sounds pretty typical, I know – except that borrowers under the HECM for Purchase (H4P) program pay no mortgage payments, even if the equity in their current home is less than the purchase price of their new home.
The H4P program is designed to help seniors ‘right size’ their home needs, either to move closer to their families or into a senior retirement community, or even to move to a warmer climate and/or lower their overall cost of living. Fixed-rate and adjustable-rate options are available.
To qualify, a H4P borrower must meet certain (reduced) income and credit requirements, and they must purchase a single family home or an FHA-approved condominium and use it as their primary residence. Borrowers are responsible for any property taxes, homeowner insurance, required maintenance, and homeowners association fees.
For seniors who have been waiting patiently for the market to rebound or to save up enough cash to move, the H4P program has been like a breath of fresh air. I've worked with many seniors who have used the program to get out of the homes they have and into the homes they need.
So, why are so few seniors using H4P? Frankly, they just don't know about it – because if they did, I'm sure many more would apply.
Here is an example of a H4P transaction that we recently funded: A 71-year-old sold his home for $800,000 and netted approximately $500,000 in cash. He purchased a $600,000 home in a retirement community on a golf course using a H4P loan, putting down approximately $270,000 (a 45% down payment) including closing costs, and pocketed the balance of $230,000 cash to be put in a retirement account or other investments. This H4P borrower has no mortgage payments and is now what we like to call a ‘H4P-pier’ homeowner.
At RightStart Mortgage, many H4P borrowers have considerable home equity but very little cash. In some cases, the borrower or someone in the borrower's family had a health emergency and incurred major medical bills. For other borrowers, the economic downturn took a major bite out of their retirement.
As lenders and mortgage professionals, it's our responsibility to give clients our very best counsel and to make sure they know about all home financing options, including the H4P program.
Harve Lubin is a vice president at RightStart Mortgage, a full-service mortgage lender that provides a full range of FHA, conforming, adjustable-rate mortgage and refinance products. Lubin has more than 45 years mortgage lending experience and is a reverse mortgage expert. He can be reached at hlubin@rightstartmortgage.com.
