8 Ideas for a New Home Gift
If you’re in the retirement phase of your life and dreaming about a new, low-maintenance home with a modern design and amazing amenities, consider an alternative financing option beyond paying cash or securing traditional financing.
The Home Equity Conversion Mortgage for Purchase Program (H4P Program for short) can give you more purchasing power and help you retain a large portion of your life savings!
What Is a Home Equity Conversion Mortgage for Purchase or “Lifestyle Loan?”
HECM, or a “Lifestyle Loan,” is a type of mortgage loan. It’s an age-based, FHA-insured purchase program that allows a home buyer who is over the age of 62 or married to someone 62+ to purchase their dream home for about 55–60% of the purchase price and never have a monthly mortgage payment.
Essentially, this program can potentially double your purchasing power and significantly reduce your out-of-pocket expenses compared to paying cash or securing traditional financing.
Is This a Reverse Mortgage That I’ve Seen Advertised on TV?
No, it’s not! The one you see on TV is where you own a home, have equity in your home, convert some of the equity to cash, and never have a monthly mortgage payment. That has been around since 1988.
The H4P Program is relatively new, and very few people even know it exists. There are some similarities—both offer no monthly payments and both are FHA insured—but they are used for different purposes.
So, What’s the Catch?
We hear, “That sounds too good to be true. There’s got to be a catch!” from a lot of folks. The catch is that you must be 62+ or married to someone 62+, the home you’re purchasing must be your primary residence, and the one-time payment must come from the liquidation of an asset or a gift—it cannot be debt.
Does the Borrower Own the Home?
Absolutely! Just like other mortgage options, the borrower retains ownership of the home. It’s the payment process that’s different, because the homeowner is not required to make loan payments, and you can sell the home at any time. It’s just a lien on the property like any other mortgage.
The borrower must remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.
If My Spouse Is Over 62 But I’m Not, Can We Still Qualify for the Loan?
Yes! As long as one of you is 62 or older, you can still qualify. The down payment is determined using the youngest spouse.
We Want to Be Able to Pass Our Home Along to Our Children When We Pass Away. What Happens to Our Home After One or Both of Us Pass?
You retain ownership of the home, so the surviving spouse may continue living in the home until he or she passes or sells the home.
After both are gone, the home still goes to the estate, which determines the value of the home and sells the home for market value. The H4P mortgage balance is paid off and the estate keeps the difference.
If for some reason the mortgage balance is greater than what the house is worth, the heirs are not liable for any deficit. FHA is responsible for the difference.
The entire loan balance becomes due and payable when the borrower dies, moves away permanently, or sells the home. As with any assets, I would recommend consulting an expert.
To recap, here are the key points about the H4P Program:
- Only available for those aged 62+ who qualify
- The home must be your primary residence
- The 55–65% down payment must come from the liquidation of an asset or a gift—it cannot be debt
- You never have a monthly mortgage payment
- The homeowner is still responsible for property taxes, homeowner’s insurance, HOA, and maintenance of the home
- HECM for Purchase mortgages are federally insured, which protects you and your heirs
To learn more about the H4P program, consider attending one of my weekly Zoom seminars. Register in advance here:
Tuesday 2:00 p.m. – 3:30 p.m. | Tuesday 5:30 p.m. – 7:00 p.m.
*These materials are not from, and have not been approved by, FHA, HUD, or any government agency.
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