First, a Home Equity Conversion Mortgage is an FHA insured, HUD regulated reverse mortgage. In fact, a HECM is the only reverse mortgage overseen by the government specifically to protect your home ownership interests.
But, an H4P is a very special HECM loan available to anyone 62 years of age or older, who may want to utilize it to:
- Preserve cash from a previous home sale or a balanced retirement portfolio
- Enhance retirement income by eliminating monthly mortgage payments
- Increase purchasing power for the next home of your dreams
- Right size to a smaller home closer to family and friends
How do you apply and what is required for an H4P loan? In many ways, it is little different from purchasing a home using a traditional forward mortgage. You still need to work with a real estate agent as well as a qualified mortgage professional who specializes in reverse mortgages. Additionally, closing costs and the loan process are also very similar.
However, there are certain items that are different from a typical mortgage, which are requirements of any HECM loan, such as:
- The youngest borrower on title must be 62 or over (note, a spouse under 62 years of age is considered a non-borrowing spouse)
- You must be purchasing a single-family home, an FHA approved manufactured home or condo, or an owner occupied 2 to 4-unit multifamily home
- You must occupy the home as your primary residence within 60 days of closing
- You must pay for the balance of the home purchase price (the amount not covered by the HECM loan) out-of-pocket from sales proceeds of a previous home, or other assets on hand (savings, investments, or gifts from family members, etc.)
- You need HUD approved financial counseling, by phone or in person, typically 60-90 minutes in duration.
- And, you need to pass a financial assessment review as required by HUD to make sure you can pay taxes, insurance and ongoing repairs of your home.
Generally speaking, an H4P is right for you if you want to:
- Avoid a required monthly mortgage payment during retirement
- Only put down 50% (or so depending on age) in equity while retaining the balance of your available cash
- Delay receiving your social security benefits by eliminating the need to pay a monthly mortgage
- Purchase a nicer home in a nicer neighborhood or even by the golf course of your dreams than your all-cash offer could otherwise afford
The reasons for using a reverse mortgage to buy your next home are endless. Or, it may be as simple as the desire to improve monthly cashflow while preserving asset liquidity in the face of long-term housing uncertainty.
But, there are certain steps that HUD requires in a certain order to close a HECM. If you find the idea of an H4P intriguing and would like more information about how you can use a reverse mortgage to purchase your next home, call, text or email Richard McWhorter of McWhorter Mortgage to find out more!
