HECM for Purchase: Little Known and Often Misunderstood

2013-03-10T00:00:00Z HECM for Purchase: Little Known and Often Misunderstoodby Michelle Krueger Times Homes Columnist nwitimes.com
March 10, 2013 12:00 am  • 

A term used exclusively for the Federal Housing Administration (FHA)-insured reverse mortgage program, HECM stands for Home Equity Conversion Mortgage.

While HECM loans have been around since 1989, the US Department of Housing and Urban Development (HUD) approved the use of these loans to finance the purchase of a new primary residence in January of 2009 when someone at the FHA noticed that many people age 62 or older were buying new homes and then within a year or two, applying for an HECM (or Reverse Mortgage) to pay off their mortgage.

By allowing the use of HECM loans to finance a home purchase in a single transaction, HUD helps homebuyers save a considerable amount of money on the fees that are part of every mortgage transaction.

Even so, more than four years later, many people are still unaware of this option. Now, with 10,000 Baby Boomers turning 62 years of age every day, many people are declaring the HECM for Purchase is the “Sleeping Giant” of the senior real estate market. Today’s highly volatile economic conditions make this mortgage product as timely and relevant to the senior market as any product in the history of the real estate or mortgage industry.

Next week, Reverse Mortgage Consultant Druanne Bocek and Cindi Martin of Security One Lending are sponsoring an informative continuing education course for real estate professional at the offices of the Greater Northwest Indiana Association of REALTORS®.

“The HECM for Purchase is a Federal Housing Administration insured home loan that allows seniors to use the equity from the sale of a previous residence to buy their next primary home in one transaction,” Bocek, who has been a dedicated reverse mortgage consultant since 2006, explained. “Regardless of how long you live in the home or what happens to your home’s value, you only make one, initial investment (down payment) towards the purchase – you can eliminate monthly mortgage payments and preserve your cash.”

Often misunderstood, reverse mortgage provides income for borrowers during retirement. The HECM for purchase option can help increase a buyer’s purchasing power and flexibility when right-sizing to a smaller, lower maintenance home, making a move closer to family or friends or taking advantage of the carefree lifestyle of a senior housing community by lowering their cost of living during retirement.

Instructor Michael Banner, founder of the American CE Institute, LLC and National Director of Education for Security One Lending, brings over 25 years of experience in the mortgage industry including the education of mortgage, real estate and financial professionals to the session.

Along with separating the myths from the realities of reverse mortgage, he will give REALTORS® all the information they need to thoroughly explain the option to homebuyers above age 62, show them how to qualify senior borrowers for HECM loans, demonstrate how to determine the monetary investment required and describe what properties qualify.

For example, because HECM loans are age specific and backed by the federal government, FHA requires each applicant to complete a counseling session with an independent third-party. Since HECM loans are very different from traditional loans that require monthly payments, the counselor will explain the unique features of these loans as well as interest rate options, end of loan issues and more. The counselor will then ask the borrower a series of questions as well as answer any questions to confirm understanding of the HECM program. After the session, a Counseling Certificate will be issued showing completion. This document is required before a loan application can be processed.

Contact a local professional REALTOR® to learn more.

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