Buying a home in all cash is a common move for active adults. Whether they’ve just sold their family home or they have years of savings on their hands, paying in all cash can help older homebuyers avoid a costly mortgage payment and lessen their overall financial stress. (It can often make those twilight years more enjoyable too!)
But a cash purchase isn’t the only option if you want to buy a house. With the Home Equity Conversion Mortgage—often just referred to as a HECM—you can purchase a property with only 60% of the sale price in cash. The rest? That’s paid to the mortgage lender once the home is sold off (either you move or your heirs sell it on your behalf).
HECM loans can come with serious advantages for active adults, and they’re also available for use in refinancing. Are you hoping to purchase a home without footing the full bill up front? Do you have significant equity in your home and want to tap it via refinancing? Then a HECM loan could be the right path.
Benefits of the HECM Loan
The biggest benefit of a HECM loan is that it gives you all the perks of a cash purchase, without requiring such a huge, lump sum of money. For active adults who are already on a limited income, this can offer a serious financial advantage.
Here are just a few of the other benefits you can enjoy when using a HECM loan to purchase a home:
- You can keep that financial cushion. You don’t need to drain your bank account or lose that financial safety net to buy a house. Put just 60% down and save the rest for a rainy day (or for completing that bucket list).
- You’ll avoid monthly mortgage payments. All it takes is one down payment, and the property is yours—no monthly payments required. That means healthy household cash flow the entire time you’re in the home.
- You’ll avoid closing costs. HECM loans allow you to finance your closing costs, meaning they’ll be paid once the home is sold at a later date. This lowers your up-front expenses significantly and leaves more cash in your pockets.
- You’ll have a place to call home. Retirement doesn’t have to mean living the small apartment life or out of an RV. The HECM can give you a spacious place all your own to host family holidays, have the grandkids over, or entertain the neighbors.
- You can invest in your future. By saving on your home purchase, you have more funds to put toward investments and savings. That’s more money to leave your loved ones when you pass and more cash to enjoy as you live out your twilight years.
If you use a HECM to refinance, it can also mean an extra monthly payment. If you’d prefer, you can also receive your equity payments in a lump sum, after your HECM loan closes. There are no tax liabilities for taking this lump sum payment.
Are You Eligible for a HECM Loan?
HECM loans are only available to buyers and homeowners who are 62 or older. You also must own 55-65% equity in the home (if you’re refinancing), or you must pay an equal amount as a down payment (if you’re purchasing a home).
The home you use the HECM on must be your primary residence, not a vacation property or a second home, and it must be a single-family home, a two- to four-unit property, or a HUD-approved condo to be eligible.
Additionally, you also:
- Can’t be delinquent on any federal debts.
- Must show you have financial ability to pay the property’s taxes, insurance, HOA dues, and other related costs.
- Will need to take a HUD-approved housing counseling session.
The amount you’ll be able to borrow on your HECM loan will depend on the home’s appraisal and sale price. If you’re refinancing, your current interest rate will also play a role.
Get More Information
The HECM loan can be a great option if you’re looking to buy or refinance a home after retirement. Want to learn more about the HECM loan or other options you might have as a 62-or-older homebuyer? Reach out to 55places Mortgage today.