HECM and no monthly mortgage payment
I just sat through a presentation on an age-based mortgage lending program called the Home Equity Conversion Mortgage of Purchase program, also called HECM or H4P program. Apparently this program was signed into law by Congress in 2008 and became available in 2009, but it's virtually unknown because the government does not advertise it. The program is similar, but not exactly like, a reverse mortgage.
1) At least one of the mortgagees must be age 62 or older.
2) Can only be used for your primary residence.
3) Down payment funds must come from asset accounts or a gift and cannot be money acquired through debt.
4) FHA insured mortgage, so you cannot already have another FHA mortgage at the the same time.
5) Down payment amount depends on age and purchase or refinance price. Usually 40% - 45% of mortgage amount. Never more than 50% of mortgage amount.
6) No monthly mortgage payment required. The monthly mortgage payment amount is added to the loan, along with interest, but no monthly payment is ever required for the life of the mortgage.
7) If you decide to sell the house, you get 100% of net proceeds of the sale, which you can use to pay off the mortgage, and/or buy another home ... even another home through the HECM program.
8) If your home value is < mortgage amount (including the deferred payments and interest that were added to the balance each month), you can walk way from the loan. FHA insurance pays the loan off, just like it does if someone defaults on a regular FHA loan.
9) If you die, your estate can sell the house and pay off the mortgage. Also see #7 and #8 above.
10) There are no income limits to use this program. One of the mortgagees must be at least 62 years old. Max mortgage amount is $625K (I think).
11) Presenter repeatedly stated that this is not a taxpayer-funded program. I don't know or can't explain why that is the case, but she said that, and the printed material she handed out also stated this.
12) HECM program can be used to refinance your current home (which is REALLY like a reverse mortgage, I guess) or it can be used to purchase a new primary residence.
All of the information I mentioned above was what was presented by a mortgage loan officer from a local bank. (It is a national program). She has been making HECM mortgage loans since the program started in 2009.
I talked with her afterwards and asked her a couple of questions:
Q1) If the mortgagee dies, is the unpaid mortgage balance taxable to the estate? Answer: no
Q2) Suppose I use HECM to buy a home and then the market crashes as it did in 2008. If I walk away from the loan forcing FHA to pay it off, is there any black mark on my credit history? Answer: none
I have no connection whatsoever with that person or her bank. I am not recommending her or the HECM program. I just find it extremely interesting.
Obviously, it would be less expensive to avoid having a mortgage in the first place. But if you are financially in the position where you must have a mortgage during retirement, I'm wondering if this would not be an attractive option.
Has anyone else ever heard of HECM? When I google HECM, all the websites talk about it as a reverse mortgage, which I guess it is ... but not exactly like a reverse mortgage because I could use HECM to purchase a new home.
Is there any catch? The loan officer who gave the presentation says that there is no catch. But has anyone else heard about HECM?