We have been getting more than just a few questions lately about the FHA HECM for Purchase program – where seniors can purchase a home using the FHA HECM reverse mortgage program.

Here is one recent question that came in from Frank who is thinking about buying a home in Queen Creek using the FHA HECM for Purchase program.

Frank’s email:

Have you actually done a FHA HECM purchase reverse mortgage? Were there any problems?
We are looking to buy a home in Queen Creek, AZ using an FHA HECM reverse mortgage, and are finding that most banks know very little about this. Contacted <bank name deleted>, and the loan officer had to go and “find out” the answer to every single question.

My reply:

Hi Frank,

Thanks for stopping by!

The HECM for Purchase program was just implemented as of January 1, 2009 – so I would be surprised if there are very many people who have completed one in America.

That said — I do have multiple customers who have been to counseling and completed the HECM for Purchase application – and are now in various stages of finding a home to buy.

The MAIN question that does not have an official answer yet is “will FHA use the appraised value or the purchase price” when calculating the value of the property.

In Arizona (an in other parts of the US as well), there are some significant deals to be had on REO property – where the property may appraise for 200,000 and the bank is willing to sell it for $125,000 – which would mean that under the HECM for Purchase program, they would be required to bring no cash to the deal and make no payments for as long as they live in the home.

When FHA first released the HECM for purchase program, they said that they would allow the appraised value to be used and NOT the sales price – but apparently there is now some confusion on that. So we are waiting for a formal Mortgagee letter from FHA to clarify that topic.

Or – at least – that is what our investors are telling us.

Ok, fire away with any questions you have, I would be happy to answer them.

Best,

Justin

Do you have questions about how the FHA HECM for purchase reverse mortgage program works?

“Fire away!”

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HECM. Now there is a funny name for a mortgage program. Whoever names these things should come from a marketing background and be able to use 4 letters to spell something that doesn’t sound so… so… weird.

HECM stands for the FHA Home Equity Conversion Mortgage and this is the official title for the FHA reverse mortgage program. The FHA HECM program is becoming more popular as the baby boomer generation enters retirement and more people are needing to convert the equity in their homes into cash.

FHA HECM Program Highlights

The FHA HECM program is a federally-insured home loan that lets seniors convert a portion of their home’s equity into cash. The equity can be paid to directly to the borower any one of three ways:

1. in one large lump sum
2. in monthly term or lifetime payments
3. in a line of credit held in an interest bearing account until the funds are needed

With an FHA HECM reverse mortgage, unlike a traditional home equity loan or second mortgage, NO REPAYMENT of the loan is necessary, as long as the senior lives in the home.

FHA HECM Requirements

• Seniors must be Age 62 years or older
• You must have equity in the home to qualify
• You must occupy the home as your primary residence
• You must attend an FHA HECM counseling session by an approved FHA HECM counselor
• You must keep the home in good repair

All money that a senior receives from the FHA HECM reverse mortgage program is tax-free – so it is a great source of tax-free retirement income. And with the way that the economy is today, I think more than just a few seniors could use more tax-free retirement income.

Related Posts

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