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HECM in a nutshell…
The HECM for Purchase program is an age-based mortgage insured by the FHA for folks aged 62 and older. Unlike a traditional mortgage, monthly payments are deferred and the loan balance increases over time. Because the loan is insured by the FHA, neither the borrower(s) nor their heirs are personally liable for the debt.
So what does all that really mean?
It’s actually very simple…let’s say you use a HECM to purchase your dream home and decide to move in 10 years. When you sell your home you will receive 100% of the net proceeds after paying off the loan balance at the time of the sale. This is exactly how a traditional mortgage works.
The primary benefit of using a HECM comes into play during your living years in the fact that you are not paying a monthly payment to the mortgage company, thereby increasing your monthly cash flow.
The secondary benefit is for your heirs. What if at the time of your passing your loan balance is greater than the value of your home — what happens?
In a traditional mortgage scenario your heirs would be forced to sell the home at a loss and cover the difference. The terms of a HECM program mandates that neither you nor your heirs are personally liable to cover the difference if your home is sold for a loss. Simply put, it’s not your problem and no one is coming after your estate for a settlement.
Let’s now take a look at a special Matrix that will give you a snapshot of what’s possible for you using a HECM based on your age and purchase price of your new home…
Using the Matrix, the table, match your current age with one of the ages listed along the top row of the chart. For example, let’s say you are currently 75.
If your age is not listed then you can round to the nearest age listed. The next step is to find the expected purchase price of your new home listed along the left hand side of the Matrix and round to the nearest price.
So for this example let’s use a purchase price of $200,000 and an age of 75. You can see that you would only be required to bring a down payment of $100,600 to closing and NEVER make another monthly mortgage payment!