I found this information and thought it would be extremely helpful to share with anyone considering a reverse mortgage, or anyone helping an aging loved one with this decision. At the end of this post I have a link to a FREE video that explains the basics of Reverse Mortgages. Check it out!
AARP answers your questions:
The Home Equity Conversion Mortgage (HECM) is the only reverse mortgage insured by the federal government. HECM loans are insured by the Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD). The FHA tells HECM lenders how much they can lend you, based on your age and your home’s value. The HECM program limits your loan costs, and the FHA guarantees that lenders will meet their obligations. HECMs Versus Other Reverses HECM loans generally provide the largest loan advances of any reverse mortgage. HECMs also give you the most choices in how the loan is paid to you, and you can use the money for any purpose. Although they can be costly, HECMs are generally less expensive than privately-insured reverse mortgages. Other reverse mortgages may have smaller fees, but they generally have higher interest rates. On the whole, HECMs are likely to cost less in most cases. A notable exception may be the reverse mortgages now being developed by some credit unions.
The only reverse mortgages that always cost the least are ones offered by state or local governments. These loans typically must be used for one specific purpose only, for example, to repair your home, or pay your property taxes. They also generally are available only to homeowners with low to moderate incomes. Who is Eligible
HECM loans are available in all 50 states, the District of Columbia, and Puerto Rico. To be eligible for a HECM loan:
• you, and any other current owners of your home, must be aged 62 or over, and live in your home as a principal residence; • your home must be a single-family residence in a 1- to 4-unit dwelling, a condominium, or part of a planned unit development (PUD). Some manufactured homes are eligible, but most mobile homes are not; cooperatives are expected to become eligible by the end of 2008. • your home must meet HUD’s minimum property standards, but you can use the HECM to pay for repairs that may be required; and • you must discuss the program with a counselor from a HUD-approved counseling agency. Repaying a HECM
As with most reverse mortgages, you must repay a HECM loan in full when the last surviving borrower dies or sells the home. It also may become due if: • you allow the property to deteriorate, except for reasonable wear and tear, and you fail to correct the problem; or • all borrowers permanently move to a new principal residence; or • the last surviving borrower fails to live in the home for 12 months in a row because of physical or mental illness; or • you fail to pay property taxes or hazard insurance, or violate any other borrower obligation. Debt Limit
If your rising HECM loan balance ever grows to equal the value of your home, then your total debt is limited by the value of your home if the home is sold to repay the loan. But if the home is not sold and the loan is repaid with other funds, then you or your estate would owe the full loan balance–even if it is greater than your home’s value. Your heirs would not have any personal liability for repaying the loan.
Click HERE to gain access to the FREE Video on Reverse Mortgages- be sure to watch!
Larry Morris CMPS American Nationwide Mortgage Company, Inc. 307 E 2nd St. #230 Newberg, OR 97132 OR License ML-3259 WA License WA-510-LO-51175
Toll Free - 1-888-660-2842 Cell - 503-421-0096 Fax - 1-888-649-6625
www.PDX-Mortgage.com www.OregonReverseMortgageNews.com
HUD has recently posted a frequently asked questions regarding the use of a Reverse Mortgage to purchase a home on their web site. Please keep in mind that the lending limit in Oregon, as well as the rest of the country, for a Reverse Mortgage has been raised to $417,000. This does not mean that you cannot purchase a home with a Reverse Mortgage for more than $417,000, only that the amount that you qualify for will be based on $417,000. Your actual Reverse Mortgage qualification amount will still be based on your age and property value.
Here’s the HUD FAQ:
Home Equity Conversion Mortgage for Purchase
Frequently Asked Questions
1. What is HECM for Purchase?
HECM for Purchase allows seniors, age 62 or older, to purchase a new principal residence using loan proceeds from the reverse mortgage.
2. What is the purpose of the program?
The program was designed to allow seniors to purchase a new principal residence and obtain a reverse mortgage within a single transaction by eliminating the need for a second closing. The program was also designed to enable senior homeowners to relocate to other geographical areas to be closer to family members or downsize to homes that meet their physical needs, i.e., handrails, one level properties, ramps, wider doorways, etc.
3. What activities can be performed prior to January 1, 2009?
Lenders may take application but they may not process or perform services that would result in a charge to a prospective mortgagor.
4. Can lenders refer clients, who are interested in a HECM for purchase transaction, to a HUD-approved housing counseling agency before January 1, 2009?
No. Counseling on HECM for purchase transactions will become available January 1, 2009. Counselors need time to adjust to the new provisions
5. Can a lender lock-in the expected average mortgage interest rate on applications that are taken prior to January 1, 2009?
Yes. Lenders choosing to lock-in at initial application will do so at their own risk of knowing that the 120-day clock begins on the day the FHA case number is issued January 1st or later.
6. What property types are eligible? Existing one-to-four unit properties where construction has been completed and the property is habitable. See ML 2007-06
7. Can a HECM for purchase be used to satisfy outstanding payment obligations associated with a land contract?
Yes, if the property will be used as collateral for the HECM and the mortgage will be held in fee simple, or on a leasehold under a lease for not less than 99 years which is renewable, or under a lease having the remaining period of not less than 50 years beyond the date of the 100th birthday of the youngest mortgagor.
8. Can a lender take application on a property that is under construction and not habitable?
No. The lender may only take application once the Certificate of Occupancy or its equivalent has been issued.
9. What property types are ineligible?
10. Are set asides for property charges (i.e., tax and insurance) allowed
Yes.
11. If the lender suspects the senior has become involved in a property flipping scam, who should be contacted?
If a lender suspects a senior has become a victim to a property flipping scam, the Processing and Underwriting Division of the local HOC should be contacted.
Complaints may be reported to HUD’s Inspector General Hotline at:
HUD Office of Inspector General Hotline, GFI 451 7th Street, SW Washington, DC 20410
Toll free: 1-800-347-3735
TDD: (202) 708-2451
12. Are gifts an acceptable source of funding?
No. Prospective mortgagors may only use their own money or money obtained from the sale of assets. FHA prohibits the use of loan discount points, interest rate buy downs, closing cost assistance, builder incentives, gifts or personal property given by the seller or any other party.
13. What would be an “allowable FHA funding source” for gap financing of the equity portion?
A withdrawal from the mortgagor’s savings or retirement account would be an acceptable funding source.
14. Can prospective mortgagors apply credit card cash advances towards the required monetary investment or closing costs?
No. This would be a violation of 24 Code of Federal Regulations 206.32(a), which requires all outstanding obligations connected to the HECM transaction, purchase or otherwise, to be satisfied prior to or on the date of closing.
15. Are seller concessions allowed?
No. Seller concessions are applicable to forward mortgages only.
16. Is seller financing permitted?
No
17. Is the Real Estate Certification required?
Yes
18. When purchasing a new principal residence, if the HECM proceeds do not cover the sales price, can part or all of the property’s indebtedness be subordinated behind the first and second HECM liens if the existing lien holder is willing to execute a subordinate agreement?
No. All existing liens must be satisfied at the HECM closing.
19. Can prospective mortgagors obtain a secured or non-secured loan from another asset (i.e., car, home equity line of credit, or investment property or second home) to satisfy the monetary investment or closing costs?
No. Consistent with existing policy, bridge loans and other interim financing methods associated with HECM transactions are prohibited, unless the unpaid or outstanding obligation can be satisfied prior to or on the day of closing.
20. Should the lender obtain a credit report for non-borrowering spouses?
Yes. Although one spouse will become the HECM mortgagor, the lender must obtain the credit report for a review of financial obligations, monetary judgments and liens that could jeopardize the HECM lien status/clear and marketable title.
21. Under what conditions may a senior cancel the purchase transaction?
The senior may decide to cancel the purchase transaction at any time prior to the date of closing. If the senior decides to cancel the transaction, he/she must notify all parties in writing. Where earnest money has been provided, the senior should review the sales contract to determine if the earnest money is refundable. The Federal Reserve Board of Governors should be contacted for right of rescission and Truth in Lending Act guidance.
22. Can the HECM mortgage participate in a rent back/leaseback agreement with the seller?
No. When purchasing a new principal residence, the HECM mortgagor has 60 days to occupy the home. Unlike a forward mortgage, there is an increased risk to FHA when the home is not occupied by the HECM mortgagor. Prior to closing, the HECM mortgagor and seller should agree to a date for physical occupancy of the property and the lender should confirm occupancy prior to their submission of the case binder to the local HOC for endorsement.
23. Are the mortgage proceeds paid to the seller through escrow?
The title company (settlement agent) is responsible for disbursing funds in accordance with State law.
24. Are there special procedures for foreclosure homes that will serve as collateral for a purchase transaction?
No. FHA has sufficient valuation guidelines related to comparable sales and declining markets to address the resale of foreclosed properties. HUD has imposed a standard of accountability to which lenders, sponsor lenders, and loan correspondents will be held is the same as the standard used to impose civil money penalties for program violations, and that standard is one of knowing (actual knowledge) or had reason to know.
25. Does FHA have special eligibility requirements for first-time homebuyers?
No. FHA encourages all first-time homebuyers to meet with a reverse mortgage counselor that offers pre-purchase counseling to educate themselves on the responsibilities of becoming a homeowner. Prior to signing a sales contract, FHA encourages a home inspection of all properties that will serve as collateral for HECM for purchase transactions. The inspection serves two purposes, to determine the magnitude, if any, of repairs and/or rehabilitation the home as well as helps the buyer to negotiate the purchase price in situation where a home requires repair or rehabilitation.
Let me know if you have any questions on this or any other matter regarding a Reverse Mortgage.
As of 1/1/2009, seniors age 62 and older can use a federally insured Reverse Mortgage to purchase a home. Under the same HECM program that is being used by many seniors to access the cash equity in their home, seniors now have another tool to use when they look at purchasing a new home.
The FHA insured HECM is a huge improvement to the old Fannie Mae Homekeeper that could be used to purchase a home.
As it currently stands, a senior looking to purchase a home would either have to pay cash or qualify for a mortgage based on their fixed income. For many, this would liquidate their savings or prevent them from buying a home that they felt comfortable living in.
With the new program, a senior could either purchase more home without having a monthly mortgage payment, or free up a significant amount of their cash to live on or invest elsewhere.
While we don’t know all of the details, we can assume that the lending limits for purchases will be similar to the limits for refinances. If so, here are some examples of what you could expect:
A 62 year old borrower could purchase a $250,000 home with an approximate down payment of $120,000. There would be a lien against the property, but there would be no monthly mortgage payment. As with a reverse mortgage used for a refinance, the loan, plus interest would be due and payable upon death or 1 year after moving out of the property.
If this same borrower was 75, the $250,000 home would require a down payment of approximately $90,000.
Look for more details here as the dust settles. Technically, we can’t even take an application until 1/1/09, so I don’t have a calculator that will give me more exact figures.
That said, if you are a senior, and looking at purchasing a home next year, you should at least consider using a Reverse Mortgage.
Call me, Larry, if you have any questions. 503-421-0096
A new exciting component of the recent FHA modernization that was recently passed and signed into legislation is the increase in loan limits for the FHA’s HECM Reverse Mortgage. Previously, loan limits were based by county, and the more rural the county, the lower the limits.
Now, all counties will be at $417,000.
So what does this mean to you?
If you are 75 and own a home worth $400,000 free and clear and live anywhere in Oregon, under the new limits, you would qualify for approximately $270,000. This is a major increase over the old limits. Previously, this borrower would have qualified for approximately $196,000.
In the above situation, the proceeds could be taken as a lump sum of $270,000, a monthly annuity of around $1700 per month or kept as a line of credit and used as needed.
If your home is worth more then $417,000, then you are still capped at $417,000 in home value. The upside to this is that you will still have a lot of equity left in your home.
The new limits combined with a limit on closing costs will allow more seniors to benefit from a Reverse Mortgage.
Call me for details on your exact situation.
Many seniors are finding themselves House Rich and Cash Poor. There just doesn’t seem to be enough money left over at the end of the month, or they are having to tap into the principle of the retirement funds in order to enjoy a comfortable retirement.
A Reverse Mortgage is a financial tool for seniors that allows them to unlock the equity in their homes. While it is technically a loan against the equity, it has several key differences from a traditional, or forward, mortgage. A Reverse Mortgage is:
This is just a brief summary of what a Reverse Mortgage is. Watch the video on the link at the top of the page, or contact me for a customized quote on just how much you would qualify for… or if a Reverse Mortgage is even right for you.
