Statistics show a large number of home buyers paying cash for homes. Is this the best strategy for retirees and older active adults? Many people, regardless of their age, have been having difficulty obtaining a mortgage. Once a mortgage has been granted, there is a monthly mandatory payment requirement. This creates risk.
In October 2008, FHA introduced a new innovative type of loan called HECM for Purchase. Very few people are familiar with this loan. This is a government insured non-recourse, non-qualifying loan for home buyers 62+ that allows them to buy a home with no required mortgage payment. Loan to values are usually between 60-70% depending on the borrower's age. Here are a few key benefits:
- Access: A home buyer has an easily obtainable alternative to an all cash purchase that will allow them to maintain a comfortable level of liquidity and keep some of their money invested with their advisor while enjoying life with no required monthly mortgage payment.
- Affordability: Secondly, many people wish to move or downsize but find that they cannot qualify for the mortgage that matches the category of property they seek. This often constrains the buying process. It makes little sense to allow the parameters of a traditional mortgage interfere. Buy what matches your lifestyle with a HECM for Purchase.
- Security: A HECM for Purchase is the safest path when you consider other risk factors such as home price depreciation. What if in 15-18 years, or if you live to 120, you outlive your home equity and at passing, the value of your home has declined significantly. This is no longer your problem or that of your heirs. Any shortfall is absorbed by the government insurance fund and it does not affect your estate or your heirs.
- Flexibility: The benefits of a HECM for Purchase continues for the borrower’s entire life and the life of their surviving spouse as long as they live regardless of home equity level provided the property is occupied as a primary residence and both spouses are borrowers. This feature, along with the increased monthly cash flow provided by not having to make a mortgage payment, provides lifestyle flexibility and security that is unmatched with other types of mortgages.
Anyone age 62 or above, that is in the market to buy a home, downsize, planning for retirement or navigating an estate plan, should consider a HECM. The affluent become affluent and stay affluent by making wise choices for themselves and their families. If you, or one of your clients, are interested in learning more about a HECM for Purchase, I would like to hear from you.
George H. Omilan