How to Buy Your Home and Never Pay Mortgage
With retirement often comes downsizing, but do you know the tools you have to make the most financially-conscious transition?
While retirement surely comes with its perks, there are a number of headaches that can come with this transition into a new era of life. For many, one of these challenges is moving from your home, often downsizing to a more conservative alternative.
However, that weight can be lifted off of your shoulders with a plan and a proper understanding of real estate. Imagine this: selling your $500,000 home, putting down $143,000 on a smaller alternative in one transaction and then never making another mortgage payment. With Home Equity Conversion Mortgage, or HECM, this could be your reality.
HECM for Purchase allows a buyer to obtain a mortgage with proceeds from the sale of a previous home (or other assets) and purchase a new home all within a single transaction. After the initial down payment, there are no other mortgage bills to be paid. It can be viewed similarly to a traditional loan, except instead of your balance going down with payments, they are added to the balance so it goes up slightly every month.
With the twists and turns of the real estate market in the United States, many see this as a good option for the future because you receive your equity upfront. The risk of losses from a downturning market is eliminated. Similarly, HECM for Purchase is FHA insured and is a “non-recourse” loan, meaning that they cannot come after you for future debt. In fact, even if the home value does drop and the balance on the loan becomes higher than the value, no one is ever responsible for paying the difference.
However, many hold the misconception that with HECM for Purchase, your children or heirs will be left with nothing once the equity on your house slips away. This is not true, as the difference in equity that you are left with following your down payment and the value of the home that was sold is then left directly to the family.
In order to comply, HECM for Purchase has a list of standard rules. Primarily, the youngest title holder of the home must be 62 or older. This way, you can borrow 50-52% of the value of your home, and this percentage only rises with age. Moreover, the home must be a primary residence. It also must be a single family home, a 2-4 unit dwelling, or an FHA-approved condo.
In addition to the above, HECM also requires that the borrower completes a counseling session approved by the Department of Housing and Urban Development (HUD) with an independent third party. This ensures that the consumer understands what they are getting into, including that they still own their home, are still responsible for maintenance, taxes, and insurance, and that their balance will rise a bit. The more educated you are about a product, the better-prepared you will be to see if it works for your situation.
When it is time to invest in real estate, dealing with an experienced professional who provides you with great information is always the way to go!