July 1, 2021
The Big Question
By Alan Tenney
HECM for Purchase Specialist
Mutual of Omaha Mortgage
If you’re not living in your dream home, then what’s stopping you?
If you dream about a new home with modern design, amenities, and low maintenance, then you owe it to yourself to learn about a powerful alternative to using traditional financing or paying cash to purchase your next home. Imagine moving into a new neighborhood close to friends and family, with neighbors just like you, and doing all of this while retaining a large portion of your life savings. You’re about to discover a little-known strategy that Boomers like you have been using since 2009 to purchase their dream home.
Introducing the Home Equity Conversion Mortgage for Purchase program, H4P Program for short. With this no monthly mortgage payment option, you can potentially double your purchasing power and significantly reduce your out-of-pocket expenses as compared to paying cash or securing traditional financing. In essence, you can purchase a $400,000 home for about $209,000 and never have a monthly mortgage payment. As is true for any loan, you must meet loan terms, including, but not limited to, occupying the home as your primary residence, payment of property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees. Some of our clients cry before discovering the H4P Program, because they would not have had the financial means to live in the home they really want. They would be forced to live in a home that may be too big, with maintenance headaches, and doesn’t offer the ease of one-story living.
The History of the H4P Program
The HECM for Purchase (H4P) Program was launched into the market place in January 2009 as a result of the Housing and Economic Recovery Act of 2008. You have to admire the forward thinking that went into introducing such a bold and new mortgage because it solves a huge need for those nearing and in retirement.
Before the H4P Program was available it was common for retirees to pay cash or secure a traditional mortgage to purchase their home. However, a lot of times, within a few years these same folks would need access to cash because of an emergency, or to supplement their income. To solve the cash flow crisis, homeowners could secure a traditional line of credit. But the problem with using a line of credit to solve cash flow issues is that future on-going payments are required.
So, while the line of credit may solve an immediate and urgent problem, it also opens up challenges for positive cash flow in the future. In some cases, a better option is to gain access to a portion of a home’s equity by securing a Home Equity Conversion Mortgage refinance. The HECM refinance option solves the cash flow crisis under more favorable terms. Specifically, you can get access to a portion of your home’s equity and not have to stress out by making monthly mortgage payments to pay the loan back. You just have to make sure you maintain the home and remain current on property taxes, insurance, any HOA fees and occupy it as your primary residence.
However, the problem with both options is that the new loan creates another round of closing costs. The H4P Program fixes this problem with a single transaction, meaning a significant portion of your nest-egg is preserved by not having to go all in with a cash purchase, and you free up monthly cash flow by not having a monthly mortgage payment. To date, the H4P Program is the only mortgage that uses age as a preliminary qualifying factor. So if you’re at least 62 then this is one time it pays to be older. Smile and celebrate!
Alan Tenney is HCEM for Purchase Specialist for Mutual of Omaha Mortgage. He can be reached at (319) 215-7972 or atenney@mutualmortgage.com,
