What Is H4P?
Home Equity Conversion Mortgage (HECM) for Purchase (H4P) is a reverse mortgage that allows seniors aged 62 or older, to buy a new principal home using loan proceeds from a reverse mortgage. The HECM for Purchase Program provides the opportunity to purchase a new principal residence with HECM loan proceeds in a single transaction. The HECM loan does not require mortgage loan repayment until the borrower permanently leaves the home.
A reverse mortgage is a complex financial tool. When deliberating whether it’s a good fit, guidance is best left to the experts with the most experience. Coast Capital has a responsibility to ensure this program is a great fit for each client. We take the time to provide informed and reassuring guidance to ensure this step is taken in a professional and friendly manner, and that you enjoy an outstanding lending experience.
How Does It Work?
With an H4P loan, people can take out a reverse mortgage and buy a new home in the same transaction. Usually, Homebuyers have a large cash down payment that is about 40-50% of the new home’s purchase price. They then use the reverse mortgage loan to borrow 50 to 60% against the home equity of the new property to complete the purchase of their new home. The homeowners are not required to make any monthly mortgage payments as long as they reside in the home and are expected to maintain the home and cover homeowners’ insurance.
How Can You Use an H4P Loan?
These HECM for purchase loans are solely used to buy a new primary residence for the borrower.
H4P Government Eligibility Requirements
To qualify for a HECM for purchase loan, the following eligibility requirements must be met:One borrower must be aged 62 or olderThe new home must be used as the primary residenceThe property must be a single-family home, townhome, or FHA-approved condoThe difference between the purchase price of the new home and the HECM loan proceeds must be paid in cash from qualifying sources such as the sale of a prior residence, home buyer’s other assets, or savingsBorrowers must complete HUD-approved counseling
HECM for Purchase Repayment Requirements
The borrower can choose to repay as much or as little as they like each month, or make no monthly mortgage payments. The flexible repayment feature makes it easier for a buyer to afford the home they really want, preserve more savings and retirement assets, and improve cash flow. As with most mortgages, the borrower must keep current with property-related taxes, insurance, and maintenance as part of their ongoing loan obligations. Repayment is generally required once they sell the home, pass away, move out, or fail to meet the loan obligations.
What’s Different About HECM for Purchase vs. Traditional Mortgage?
An H4P loan borrows against the equity of a new home to allow borrowers to buy a home without a monthly mortgage payment. There are different requirements for a reverse purchase mortgage compared to traditional mortgages and the lending limits are stricter on traditional loans.
Down Payment Requirement
The HECM for Purchase program requires a down payment of between approximately 29% and 63% of the purchase price, depending on the buyer’s age or Eligible Non-Borrowing Spouse’s age, if applicable. (This range assumes closing costs will be financed.) The rest of the funds for purchase come from the HECM loan. This allows the buyers to keep more of their cash to use as they wish, as compared to paying all cash, while still having the flexibility of no required monthly mortgage payments.The loan amount is determined by the age of the borrower, the current interest rate and the value of the home. This calculation is determined by the Department of Housing and Urban Development (HUD). †These are age-based loans that allow older borrowers to qualify for more in loan proceeds.
What Kind of Home Can You Buy?
This loan can be used to purchase single-family homes, townhomes, and FHA-approved condos.
Should You Consider a HECM for Purchase?
This program is a great fit if you:Are ready to downsize, up-size, move closer to family, move to a senior community, or buy their “dream home” and don’t want to take on a required monthly mortgage payment.Live on a fixed income; are concerned about being able to afford a new home via cash purchase or traditional financing; and/or want to avoid tapping into their retirement nest egg.Your current home no longer fits your lifestyle – For example, the washer and dryer are down in the basement; the yard is too big to take care of; you need or prefer a one-floor living situation. You want a new home that’s a better fit for your needs.You want to increase your purchasing power to buy the home you really want, with the amenities you need or desire.You want to preserve some of the proceeds from the sale of your home as cash or other retirement savings.
Frequently Asked Questions
When does the H4P have to be repaid?
Although H4P loans don’t require a monthly mortgage payment, borrowers can make payments as they want. Repayment is generally required once they sell the home, pass away, move out, or fail to meet the loan obligations.
What are the benefits of H4P?
There are many benefits to an H4P loan, including:Buying a home that better fits your needsPurchasing a new home while saving more moneyNo monthly mortgage payments for the life of the loan (when borrowers pass or the home is sold)
Who is eligible for H4P?
Borrowers must be at least 62 years of age and meet specific government requirements.
How does the seller get paid?
As with a traditional mortgage, the funds are paid directly to the seller, and the borrower repays the loan.
Where can I learn more?
You can fill out a quote form on this page to speak with our team.
Is the H4P mortgage interest rate fixed or variable?
Interest rates can be fixed or variable depending on the loan program you choose.
How is the down payment determined?
A downpayment for a HECM for purchase loan is determined by the age of the youngest borrower, the purchase price of the new home, and current market interest rates.
What are the borrower’s obligations?
As with a regular HECM loan, borrowers are responsible for homeowners’ insurance, maintaining the home to FHA standards, and property taxes. Since this loan is for purchasing a new home, borrowers must move into the new home within 60 days of closing for the loan to be valid.
Speak With Coast Reverse Mortgage
No matter if you know an H4P loan is right for you or you still have questions, our reverse mortgage team is ready to help you every step of the way. Contact Coast to discuss your reverse mortgage options.
Speak With a Coast Reverse Mortgage Specialist Today.
Frequently asked questions
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Q: What is a Reverse Mortgage?
Reverse Mortgages, also known as a HECM (Home Equity Conversion Mortgage), allows homeowners age 62 or over to access a portion of the equity in their homes without the requirement of a traditional monthly mortgage payment. Please note that the borrower remains responsible for property taxes, homeowners insurance and home maintenance.
Q: Who is eligible for a Reverse Mortgage?
You are eligible to apply for the HECM Loan Program if you are age 62 or older and live in the property as your primary residence.
Q: What kind of homes are eligible for a Reverse Mortgage?
The property can be a single family home, a multi-unit property (such as a duplex or fourplex) a townhome, a manufactured home or condominium.
Q: Are proceeds from a Reverse Mortgage taxable?
No. Because the proceeds from a reverse mortgage are a loan, they are not considered income to the borrower and therefore are not taxable. Please consult a tax professional for tax advice.
Q: Are there restriction on how Reverse Mortgage proceeds can be used?
No. There are no limitations on how you may use the money.
Q: How can I get more information on Reverse Mortgages?
Answer the questions to connect with a Reverse Mortgage Specialist.
