Reverse Guidebook For Real Estate Professionals / H4P
◆ Boost Your Clients’ Purchasing Power
◆ Sell More Homes and Increase Your Commissions
◆ Learn Why Traditional Financing or Paying Cash May Not Be Optimal for Retirees
Home Purchase Trends for Retirees:
• Proximity to Family and Friends: Retirement often brings a desire to be closer to loved ones.
• Downsizing: Many prefer smaller, more manageable homes.
• Newer Homes: They tend to purchase newer properties. While your client’s current home may have been perfect during their working and family-raising years, it might be less suitable for retirement — too large, outdated, needs costly repairs, etc. An important question to ask them is: Does your current home provide a safe and comfortable environment for aging in place?
The Challenges
Many older homeowners hesitate to move despite the potential benefits. Low-rate mortgages from 2020-2021 have millions enjoying their refinanced homes, making current rates seem financially daunting. Concerns about being priced out of the housing market, taking on a new mortgage payment in retirement, sacrificing most or all proceeds from their current home sale or draining retirement savings are significant barriers. Additional worries include affording the move amidst other financial obligations, fear of past credit issues hindering mortgage qualification and unease with the current housing and borrowing environments.
According to a recent study from the National Association of Realtors®, baby boomers (ages 5876) have surpassed millennials (ages 24-42) as the largest group of homebuyers, now accounting for 39% of all purchases. One advantage most olderadult homebuyers have, especially in a competitive market, is substantial housing equity built over their working lives. The net proceeds from selling their current home can propel them into their next one. Most homebuyers use financing to purchase their homes, making it essential for real estate professionals to have a solid grasp of mortgage lending to guide clients effectively. At Fairway, we frequently assist older-adult clients looking to secure a mortgage for their next home. Seniors are on the move, which presents a golden opportunity for real estate pros like you. Seize the moment and help your clients navigate their financing options with confidence! †According
The Good News
All these buyers, even those with the means to pay all cash for their next home, could benefit from a Home Equity Conversion Mortgage for Purchase (H4P) loan. This loan, sometimes called a reverse mortgage for home purchase, offers a unique solution. While paying all cash or taking on a new mortgage that requires monthly principal and interest (P&I) payments are viable options for homebuyers 62 and older, read on to see how H4P loans offer the best of both worlds.
WHAT IS AN H4P LOAN AND HOW DOES IT WORK?
The Home Equity Conversion Mortgage for Purchase (H4P) is a unique loan designed for homebuyers 62 and over. Introduced by the U.S. Government in 2008, this innovative alternative to traditional mortgages is available exclusively through Federal Housing Administration (FHA)-approved lenders like Fairway. Regulated by the Department of Housing and Urban Development (HUD), H4P loans are FHA-insured and assist older Americans in buying more suitable homes while preserving their savings.
Key Features
No Monthly Mortgage Payments: Unlike traditional mortgages, H4P loans don’t require monthly principal and interest payments. Repayment of the loan balance can be deferred as long as the borrower(s) live in the home, maintain it as their primary residence and cover essential property charges like taxes and insurance.
Down Payment / Loan Proceeds: Borrowers need to make a cash down payment of approximately 45%-70% 1 of the purchase price, with the remaining balance covered by the lender through loan proceeds. The exact down payment depends on factors such as the youngest borrower’s age, current interest rates and the home’s value. Typically, lower interest rates and older age result in a smaller down payment.
This table shows the estimated loan funds available (expressed as a percentage of the home purchase price) from utilizing an H4P loan to buy a new home. 2
Age of Youngest Borrower
Estimated H4P Loan Proceeds (Contributed by Lender)
62 33.50% of the purchase price
65 35.69% of the purchase price
70 38.60% of the purchase price
75 42.19% of the purchase price
80 47.30% of the purchase price
For a quick estimate of the cash needed to close on a property, use our H4P loan calculator at fairwayreverse.com/H4Pcalculator.
1The required down payment on your client’s new home is determined on a number of factors, including their age (or eligible non-borrowing spouse’s age, if applicable); current interest rates; and the lesser of the home’s appraised value or purchase price. 2 Loan proceed percentages are based on home values up to the FHA limit of $1,149,825 and an expected interest rate of 6.625% as of 7/22/24. This information is provided as a guideline and does not reflect the final outcome for any particular homebuyer or property. The actual reverse mortgage available funds are based on current interest rates, current charges associated with loan, borrower date of birth (or non-borrowing spouse, if applicable), the property sales price and standard closing cost. Interest rates and loan fees are subject to change without notice. Following the closing of the home purchase, no further principal or interest payments will be required as long as one borrower occupies the home as their primary residence and adheres to all HUD guidelines of loan. Borrower must remain current on property taxes, homeowners insurance (and homeowner association dues, if applicable), and home must be maintained.
Interest and Fees
A higher interest rate affects buyers using a traditional mortgage by way of a higher required monthly P&I mortgage payment. The H4P loan can be either a fixed or variable interest rate. The borrower can repay as much or as little toward the loan balance each month as they want or choose to make no monthly mortgage payment (must pay property-related charges like taxes and insurance). The interest rate doesn’t affect how much a borrower must pay each month because they can pay as little as $0 monthly.
That said, an H4P loan is borrowed money, and any borrowed money not yet repaid accrues interest. If the borrower opts to make no voluntary prepayments, the interest and mortgage insurance premium (MIP) get tacked onto the loan balance. The unpaid loan balance will grow over time (the higher the interest rate, the faster the balance will grow), which can chip away at equity in the home. While your client’s home equity may decline over time, their total net worth may not, as they’ll have freed up cash flow to manage, save and potentially grow.
Loan Repayment
The H4P loan becomes due and payable when one of the following maturity events occurs:
• The property is no longer the principal residence of at least one borrower. For example, an H4P loan becomes due and payable if the last remaining borrower passes away or permanently moves to a nursing home. (Note: The due and payable status of the loan may be deferred in certain situations in which an eligible non-borrowing spouse is involved.)
• A borrower doesn’t otherwise fulfill their obligations under the loan terms. For example, an H4P loan becomes due if the borrower fails to pay their property taxes in a timely manner, a requirement for loan term compliance.
When an H4P loan becomes due, it’s usually settled by selling the home. Unlike a traditional mortgage, an H4P loan includes a safeguard to protect the homeowner and their heirs from owing more than the home’s value. 3 Even if the loan balance exceeds the property’s worth, the home’s sale will always cover the debt when the loan is due. Thanks to the FHA-insured nonrecourse feature, the home itself stands for the debt—not the borrower or their heirs.
Options for Heirs:
• Sell the home and pocket any profit
• Sign a deed-in-lieu of foreclosure and walk away from the home (when they don’t want the home and there is no financial benefit from selling it)
• Pay off the mortgage balance and keep the home
• Obtain a short payoff of 95% of the current home value (when they want to keep the home and the balance exceeds the home value)
3There are some circumstances that will cause the loan to mature and the balance to become due and payable. Borrower is still responsible for paying property taxes and insurance and maintaining the home. Credit subject to age, property and some limited debt qualifications. Program rates, fees, terms and conditions are not available in all states and subject to change.
BENEFITS AT A GLANCE
For Your Clients:
• Enhance Liquidity and Preserve Savings: Avoid making an all-cash purchase, allowing your clients to keep more productive assets for other uses rather than tying them up in real estate.
• Increase Monthly Cash Flow: Taking on a new mortgage without monthly P&I payments can significantly improve your clients’ retirement cash flow strategy. (Property charges, like taxes and insurance, must still be paid.)
• Buy the Home They Want: With increased buying power, your clients can purchase their ideal home with the desired upgrades. This flexibility can also expedite selling their current home, as they won’t necessarily need to wait for the highest price to secure their next home.
For Your Business:
• Set Yourself Apart: Be the first agent in your local market to educate consumers about this unique loan product.
• Increase Buying Power: Help your buyers afford higher-priced homes with the amenities they want, leading to higher average sales prices and happier clients.
• Capture New Customers: Attract seniors who don’t want a monthly mortgage payment but are hesitant to use most of their assets to buy a new home in cash.
• Fewer Underwriting Denials: Credit and income requirements for H4P loans are typically less restrictive than traditional mortgages.
A Hypothetical Example:
NOTE: Story is for illustration purposes only. The persons depicted herein are fictional and any resemblance to actual persons is a coincidence.
Meet Sue, a retired 73-yearold homeowner who wants to relocate. She can net $500,000 from selling her existing paidoff home and aims to buy a $600,000 single-story home closer to her family.
Here are her options:
$600,000
Sue could use her entire $500,000 proceeds and an additional $100,000 from her $200,000 retirement savings to pay in full. While she avoids a mortgage payment, she depletes her retirement savings and ties up equity in her new home,
Alternatively, Sue could use about 25% of her home sale proceeds for an upfront payment and take out a conventional 30-year fixed-rate mortgage for the remaining $480,000. At a 6.38% interest rate, her monthly principal and interest mortgage payment would be $3,142.
Using a traditional mortgage preserves more of her retirement savings upfront but saddles her with a significant monthly payment during retirement, making unexpected expenses harder to handle. Over 30 years, she could end up paying as much as $1,131,019 in principal and interest payments plus her initial monetary investment.
Increased purchasing power
No monthly mortgage payments (must pay essential property charges, like taxes and insurance)
Generally easier loan to qualify for compared to a traditional mortgage
Potentially less cash outlay over time
Helps preserve retirement assets
Protection against falling home values
$381,000 (Down Payment + Upfront Costs)
Unpaid balance accrues interest and MIP, reducing home equity
Requires a more significant upfront monetary investment compared to traditional mortgages
Must meet all loan obligations
Lien stays on the home until the mortgage is fully repaid
With an H4P, Sue could use $381,000 from her home sale proceeds for the upfront payment on the new home, leaving her with $319,000 in savings. Financing $243,000 at an expected rate of 6.625% for an adjustable-rate H4P, 3 she would have no monthly principal and interest payments, only needing to cover property-related charges. The H4P loan allows her to preserve more of her retirement savings upfront compared to a cash purchase, providing financial flexibility and increased buying power. This approach lets her compete for her desired home without draining her nest egg or taking on high monthly mortgage payments.
ELIGIBILITY REQUIREMENTS
Like any mortgage, an H4P loan has qualifications and requirements that the prospective borrower must meet.
Age
Only one homeowner has to be 62 or older (a borrower isn’t eligible to complete the loan process until they officially turn 62).
Residency
The borrower must move in within 60 days of buying the home and use it as their principal residence. The H4P product has an annual certification process in which the borrower must confirm that the home is still their primary residence.
Credit
To qualify for an H4P loan, borrowers must meet minimum credit requirements and have no delinquent federal debt. Credit matters because the H4P loan must be a sustainable solution. Although an H4P loan doesn’t require monthly principal and interest payments, borrowers must be able to cover ongoing property-related expenses such as taxes, insurance and HOA dues. Failing to meet these obligations can lead to default.
The good news? It’s generally easier for older-adult homebuyers to qualify for an H4P loan than a conventional mortgage. There’s no minimum credit score requirement. Instead, the lender will assess your client’s credit history, property charge history and monthly residual income to determine loan approval. This financial assessment ensures the loan is a sustainable option for the borrower.
Property Types
Here’s a list of the generally accepted (and not accepted) property types for the H4P product:
Generally Eligible:
• Single-family residence
• 2- to 4-unit properties
• Some manufactured homes
• Modular homes
• Planned unit developments (PUDs)
• Townhomes
• Approved condominiums
• New construction homes
Generally Ineligible:
• Mobile homes
• Cooperative units
• Commercial properties
• Working farms
• Investment or second homes
• Condo projects less than two units
• Condos not on the approved list
• Properties on Indian reservations
FREQUENTLY ASKED QUESTIONS
Is there a Mortgage Insurance Premium (MIP)?
Yes. Similar to a traditional FHA mortgage, your buyer will be charged initial and ongoing mortgage insurance premiums (MIPs), which can be rolled into the loan. The MIP funds the non-recourse feature, protecting them and their heirs from owing more than the home’s value if the loan balance exceeds the sale price when the loan is due.4
Can the seller credit the buyer for required repairs?
No. All required repairs must be completed before closing at the seller's expense, as HUD doesn’t allow repair credits in H4P transactions.
Are seller concessions allowed?
Yes. The FHA now permits interested parties (property sellers, real estate agents, builders or developers) to contribute up to 6% of the sales price on H4P transactions. The 6% limit on interested party contributions may be applied toward the cost of origination fees, other closing costs paid outside of closing (e.g., credit report and appraisal), payment of the initial mortgage insurance premium and more.
4There are some circumstances that will cause the loan to mature and the balance to become due and payable. Borrower is still responsible for paying property taxes and insurance and maintaining the home. Credit subject to age, property and some limited debt qualifications. Program rates, fees, terms and conditions are not available in all states and subject to change.
Can your buyer start the H4P application before a new construction home is built?
Yes. They can complete the H4P application and begin the process of securing the loan. However, the appraisal, and consequently the loan closing, cannot happen until the certificate of occupancy (or equivalent) has been issued. Once the certificate of occupancy has been issued, the application will be finalized, and the appraisal and title documentation will be ordered.
allowed when my client purchases
How fast does an H4P loan typically close?
An H4P loan from Fairway usually closes in a similar timeframe to a traditional mortgage and includes the usual steps, like pre-qualification, inspection, appraisal and underwriting. Fairway will walk your client through every step of the process to help ensure on-time, speedy funding.
What are my client’s responsibilities as the borrower?
They must:
• Live in the home as their primary residence.
• Maintain the home to FHA standards.
• Pay property taxes, insurance and any other applicable property charges, such as HOA or condo fees.
Can the applicant enter into a rent/leaseback agreement with the seller?
No. They must occupy the home as their primary residence within 60 days of closing, with no rentback agreements allowed.
Does my client own the home with an H4P loan?
Yes. Your client retains full ownership of the home. The H4P loan simply places a lien on the property, just like a traditional mortgage or home equity line of credit.
Can my client buy a flipped home with an H4P loan?
Yes, but the sales contract must be signed more than 90 days after the seller purchases the property.
OUR CUSTOMERS SAY IT BEST
See how Fairway customers have used H4P loans to improve their financial future, secure their dream homes and enjoy a more fulfilling retirement:
Bobby and Gloria:
Boosted their buying power with an H4P loan to land their perfect home.
Watch now!
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Colin:
Found financial stability and a new home after his divorce, thanks to an H4P loan.
Watch now!
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Cathy:
Used an H4P loan to buy her dream home and set up a line of credit for home improvements.
Watch now!
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ABOUT FAIRWAY
At Fairway Independent Mortgage Corporation, customer service isn’t just a priority—it’s our way of life. We’re committed to finding great rates and loan options for our customers while offering some of the fastest turnaround times in the industry. Acting as trusted advisors, we provide highly personalized service, guiding you and your clients through every step of the loan process. Our mission is to exceed expectations, ensure satisfaction and earn trust. For over 25 years, we’ve helped thousands of Americans achieve their dream of homeownership. We make it easy to enhance your value proposition by incorporating H4P loans into your business. We offer seminars to educate you, your team and builder partners and provide co-branding materials, such as event fliers and banners.
After discussing the exciting H4P option with your client, give them our consumer-friendly “62+ Homebuyer’s Guide,” which explains everything they need to know about buying a new home using an H4P loan. From the initial consultation through closing and beyond, you can rest assured that your clients will be in good hands with Fairway.
GAIN AN INSTANT EDGE OVER OTHER REAL ESTATE PROFESSIONALS.
At Fairway, we share your commitment to helping older Americans enjoy the quality retirement housing lifestyle they desire and deserve.
