What the HECM is a Reverse Purchase Mortgage?
Home Equity Conversion Mortgage an FHA loan for folks who are 62 and older which allows you to purchase a home by making a one-time down payment and never make a monthly mortgage payment as long as you occupy the home.
My friend Gordon's plan was to work until he drops.
let's outline one creative use of the HECM for purchase.
- Baby boomer wanting to retire BUT
- Has a $200k in equity in his home (his entire net worth) and still has a mortgage payment of $1,200 that's holding him back from being able to retire.
- His monthly $1,100 social security check is not going to enable him to quit working.
- The Grand Plan.
- Sell the home that was great for raising kids and close to work, nows it's just a financial burden.
- Use the 200k equity from the sale as a down payment on a 400k 4-plex in a trendy in-town neighborhood.
- The magic for the HECM for purchase is that he never has to make a mortgage payment.
- Let's do the math
- He no longer has his original mortgage payment of 1,200
- Lives in one unit rent's the other 3 for 900 each that's 2,700 minus lets say 900 for taxes and insurance.
- OK, now he has a rental income of 1,800 + 1,200 social security and NO housing expense.
- $36,000 a year forever = retirement NOW for my friend Gordon.