H4P Financing Overview – Talk with me about H4P®
H4P Financing for Seniors
The Home Equity Conversion Mortgage (HECM) for Purchase (H4P) may be a good solution for seniors and retirees looking to purchase, afford and right-size to a more comfortable home. Watch the video and read more below to discover how the H4P loan works, and explore its benefits.
Whether you’re ready to finally own your retirement dream home, or you want to downsize to something more efficient for your needs, an H4P loan can help you achieve your homeownership goals while helping you preserve more liquid funds in the short term at closing, and maximize estate planning and legacy funds for heirs in the long run.
What is H4P and How Does it Work?
H4P is a type of Home Equity Conversion Mortgage (HECM) – aka reverse mortgage – that is used to finance home purchases. With an H4P, home buyers receive funds from the lender to finance approximately 50-60% of the purchase price and they are freed from having to make regular monthly payments after the purchase is complete. H4P customers are responsible for continuing to pay their property taxes and homeowners insurance premiums as well as ongoing maintenance and home repair costs.
The H4P loan does not need to be repaid until the last surviving homeowner is no longer using the home as their primary residence – either from selling or vacating the property, or passing away. All remaining equity always belongs to the homeowner or their heirs. Losses, if any, are absorbed by a special FHA federal insurance fund that has been created just for this purpose.
H4P allows borrowers who are 62 and older to buy a new primary residence and take out a reverse mortgage or home equity line of credit in a single transaction. This can help the borrower save on closing costs. Once the borrower makes the purchase, they are not required to make monthly mortgage payments. Instead, the reverse loan pays out proceeds to the borrower. This makes the loan amortize backwards or in reverse (hence the name ‘reverse’ mortgage). This reverse amortization makes it so the borrower’s loan balance increases over time. With a traditional mortgage, the borrower makes monthly payments and their loan balance decreases.
More on H4P Financing
When Does the H4P Have to Be Repaid?
A reverse mortgage or line of credit does not have to be repaid until the last surviving homeowner no longer uses the home as their primary residence. When this occurs, the homeowner, their estate or their heirs may wish to sell the home and use the proceeds to pay off the reverse mortgage. If the home does not sell for enough money to pay off the loan, the FHA absorbs the loss leaving the homeowner’s heirs free from any responsibility for the debt.
What are the benefits of H4P?
- The one-time close feature helps borrowers preserve liquidity and reduce closing costs.
- Provides seniors with the purchasing power to afford the home they really want.
- Provides financial flexibility (monthly mortgage payments are not required). *
- Protects heirs from financial liability.
- FHA insured.
*Homeowner is still responsible for paying home insurance premiums, property taxes and home maintenance costs.
Who is Eligible for H4P?
An H4P reverse mortgage is designed for people age 62 or older who desire to make a sizeable down payment and finance the rest. Non-borrowing spouses who are younger than 62 are permissible with protections available to remain in the home if the older spouse can no longer live in the home. Here are some of the requirements to qualify for this safe, federally insured program:
- Reside in the home more than 6 months of each year.
- Participate in a homeownership counseling session.
- A financial assessment to determine suitability.
- No minimum credit score is required.
- Federal debt including back taxes must be paid.
- H4P is a first mortgage on title at time of closing.
Explore our Learning Center for more information or connect with us today by calling (800) 596-3788.
Purchasing a Home with a Reverse Mortgage
You may be aware that reverse mortgages can provide a valuable financial cushion to qualified seniors who want to stay in their homes as they age. But did you know that reverse mortgages can also be used to purchase a home? A Home Equity Conversion Mortgage (HECM) for Purchase is a reverse mortgage program designed to help senior homeowners finance the cost of a new home purchase. Read below to learn more and feel free to reach out to us with additional questions and to request a free rate quote.
How does an HECM for Purchase work?
An HECM for Purchase allows seniors age 62 or older to purchase a new principal residence using the loan proceeds from a reverse mortgage. In simplest terms, the HECM for Purchase is designed to allow seniors to purchase a new home and obtain a reverse mortgage in a single transaction.
How does the seller get paid?
The reverse mortgage proceeds are paid to the seller of the home through the title company (settlement agent). The title company is responsible for disbursing funds in accordance with state law.
What are the benefits?
An HECM for Purchase can be a great financial tool to help senior homeowners relocate to other geographical areas where they can be closer to family. As we age, being close to loved ones and having their support becomes more important.
Also, an HECM for Purchase can allow seniors to downsize to a more manageable home or one that has features that meets their changing physical and mobility needs, i.e. handrails, one-level homes, ramps, wheelchair accessible entryways, etc.
Where can I learn more?
You can review Department of Housing and Urban Development’s guidelines for HECM for Purchase loans. You may also contact one of our knowledgeable lending professionals to review the details of the program and discuss whether an HECM for Purchase loan makes sense for you.
Potential Benefits of Reverse Mortgages**:
- No monthly payments and no repayment is required until all borrowers are no longer using their property as their primary residence, all parties on the deed pass away, or they fail to pay their property taxes and homeowners insurance.
- Tax free monthly income*
- Payments can be used for whatever the borrower wants, including home renovations, consolidating debt, paying for medical expenses and insurance costs, and traveling and other leisure activities
- Reverse mortgages provide a tool that allows seniors to tap into the equity they have in their homes. There are no income or minimum credit score qualifications. In today’s tightening credit markets, reverse mortgage products may be one of the best solutions available to most retired homeowners.
- Possibly the greatest benefit of all, reverse mortgage programs may help seniorsremain in their homes that they have worked so hard to pay for throughout their lives.
- A reverse mortgage is what we call a non-recourse loan. This means that with a reverse mortgage you are not personally liable. The liability is only to the extent of the value of your home at time of sale, death or vacating the premises as your permanent residence. You are not liable nor are your heirs personally liable; they can either sell the home at time of your death or keep the home and pay off the remaining balance of the reverse mortgage.
Talk to a reverse mortgage professional to learn more about some of the benefits of reverse mortgages and to see if one is right for your financial needs.
*Consult a financial tax professional for details.
**Loan benefits and parameters are subject to change. Consult with a mortgage professional for up-to-date information.