Author:

Community Mentor

	Add to del.icio.us
	Add to YahooMyWeb
	Add to Simpy
	Add to BlinkList

[ Join discussion ]

HECM - HUD reverse mortgage to purchase home or cash out equity

If you're an older homeowner looking to purchase a primary home or convert the value of your home into cash, without having to make a monthly payment, try getting an HECM or Home equity conversion mortgage. The HECM is the only reverse mortgage insured by the FHA or HUD. The article here explains the basics of HECM and highlights the following topics.

What are the eligibility criteria?
How much can I borrow?
What interest rates are available?
What are the loan costs?
How do I get the loan proceeds?
How do I repay the loan?
What if balance exceeds home value?
What if the home appreciates in value?
Can HECM affect Social Security and other benefits?

What are the eligibility criteria?

Unlike other mortgages, an HECM (HUD reverse mortgage) does not have any qualifying criteria regarding your income, credit history and employment. In order to qualify for a home equity conversion mortgage, you need to satisfy the criteria given below.

Age: You as well as any co-borrower must be aged 62 years or above.
Collateral: The home used as the collateral must be your primary residence. If you purchase a home using a home equity conversion mortgage, you need to occupy the property (as your primary residence) within 60 days of closing.
Mortgage balance: There should be no or low outstanding balance on any previous mortgage taken against your home. You should be able to pay off the balance at closing using the reverse mortgage proceeds.
Down payment/closing costs: If the loan is meant to purchase your home, make sure you have enough cash at hand in order to compensate for the down payment and closing costs. You can use your savings, retirement accounts and proceeds from sale of personal property or current home as sources for your down payment. The amount of down payment depends upon age of the buyer and the interest rate at which the loan is available.
Counseling session: Prior to applying for the loan, you need to attend a counseling session with a HUD-approved HECM counselor. The purpose of counseling is to educate consumers about how the reverse mortgage works so that they can keep away from scammers targeting older homeowners. To get HECM counseling, call 1-800-569-4287. You'll receive a certificate after having attended the counseling session. You need to show the certificate to your FHA lender at the time of applying for an HECM.

There are certain property requirements when it comes to qualifying for a home equity conversion mortgage. The property standards are given below.

Property must meet FHA standards; any repair work can be done using the loan proceeds.
Your property must be a single-family residence in a 1-to-4 unit dwelling.
It can be an FHA approved condominium or planned unit development (PUD).
Townhouses, mobile homes or manufactured housing are eligible.

How much can I borrow?

HECMs offered for purchase of primary residence have a maximum loan limit of $625,000 nationally. This implies that even if your home is appraised for $1,000,000, your loan amount (or LTV ratio) will be based on a value of $625,000 instead of $1,000,000. The maximum amount you can borrow depends upon:

Your age or the co-borrower's age, whichever is less.
Lesser of home appraised value or maximum loan amount that FHA insures in your area.
Current interest rate on your loan.

You can borrow more if:

Appraised value of your home is quite large
You or the youngest borrower is older in age
Loan interest rate is lower

What interest rates are available?

Usually HECM and all other reverse mortgages are available at adjustable rates of interest tied to a US Treasury Security Index or the LIBOR Index. You may choose an interest rate that adjusts monthly or annually. As adjustable rate mortgages have lifetime caps, therefore you needn't worry about accumulating too much of debt over a certain period of time. However, there are lenders offering fixed rate loans too.

What are the loan costs?

The costs of taking out an HECM (FHA reverse mortgage) are quite higher than traditional home loans. You need to pay for the following fees:

Origination fee: This is the lender's fee for originating your loan. The maximum fee that a lender can charge you is limited to $6000.
Closing costs: These include a wide range of fees including appraisal fee, processing fee, discount points and others. For further details, check out the closing costs usually required for getting a mortgage.
Servicing fee: This is the cost of servicing your loan. Servicing includes sending your account statements, forwarding your loan payments and monitoring whether you're paying the insurance and taxes.
Upfront MIP: It includes an upfront premium on your mortgage insurance policy (MIP). The insurance premium is equal to 2% of the lesser of your home's appraised value or maximum HECM amount insured by FHA in your area. In addition to the upfront premium, you'll need to pay a monthly premium worth 0.5% of the loan balance.

How do I repay the loan?

Unlike traditional home loans, the FHA reverse mortgage does not require monthly payments as long as you occupy the property. The loan amount along with the accrued interest is paid off when the last surviving borrower passes away or sells the property. If you're undergoing medical treatment in a nursing home, the HECM gives you 12 consecutive months to stay there prior to loan payoff.

The loan becomes payable if the borrower relocates or when the loan term ends. However, you're responsible for payment of property taxes, homeowners insurance, utility bills and other maintenance costs. If you don't make such payments, your loan will become due and payable.

What if the loan balance exceeds home value?

You or your heirs won't owe more than the value of your property. So, if your loan balance exceeds the property value, the MIP policy will help to compensate for the difference. You will not be forced to sell or vacate property when your loan balance gets higher. Instead, you can continue to occupy the property provided you pay for homeowners insurance, property tax and repair work on the home.

What if the home appreciates in value?

If the home appreciates in value during the loan term, you or your heirs (upon your death) will receive the extra funds remaining after the loan is paid off.

Can HECM affect Social Security and other benefits?

The HUD reverse mortgage proceeds do not affect your Social Security or Medicare benefits because the amount of such benefit is not based upon the total value of your assets. However, it can affect your eligibility for Supplemental Security Income (SSI) if your liquid assets exceed a certain limit. The best thing is to use your HECM advances within the month you receive them. Otherwise, they'll be considered as part of your liquid assets and can affect your chances of qualifying for SSI. As for the Medicaid benefits, you may be considered ineligible depending upon state laws.

The HECM program offers the highest loan amount and the lowest interest rate as compared to other reverse mortgages, which require higher costs and provide smaller advances. But the interest accrued is not deductible on your income tax returns until you pay off the loan either in part or whole. However, an HECM makes seniors financially independent by helping them access their home equity or purchase a home without the burden of loan repayment.

Author

Message

juanita

Guest

0.10 Dollars($)

Post subject: reverse mortgage

has anything that has been done in Washington been a help in getting a reverse mortgage?

jerry

Moderator

Joined: 17 Oct 2005
Posts: 1838
Location: MICHIGAN

280.70 Dollars($)

Post subject:

Hi juanita, You may be talking about the New Housing Bill which includes increase in reverse mortgage limits. Know more about it from http://www.mortgagefit.com/news/newhousingbill-reverseloanlimit.html . Thanks, Jerry

raymond
raymond

Community Experts

Joined: 03 Jul 2009
Posts: 690
Location: Orange County, CA

110.73 Dollars($)

Post subject:

Yes, the problem has been corrected. Prior to it being corrected, you could get a FHA-insured Reverse Mortgage in Washington, but only from a Federally Chartered National Bank. Mortgage Banks and Mortgage Brokers weren't allowed to originate them. _________________ Raymond www.ReverseMortgageCounselor.com

LillieLu

Guest

0.10 Dollars($)

Post subject: HECM Reverse Mortage to purchase a home

If the home I want to purchase is $40,000.00, Howmuch will I need for a down payment and balance. Is there a balance I have to pay for the home?

Raymond Denton

Guest

0.10 Dollars($)

Post subject:

What are the birthdates of you and your spouse?

LillieLu

Guest

0.10 Dollars($)

Post subject: HECM Reverse Mortage to purchase a home

I am 62 and single.

LillieLu

Guest

0.10 Dollars($)

Post subject: Reverse Mortage to purchase a home

Someone needed to know my birthday 8/16/46

Raymond Denton

Guest

0.10 Dollars($)

Post subject:

You would need to contribute $25,814.00 to purchase the home with a Reverse Mortgage. The amount homeowners have to contribute decreases as they grow older.

Bink

Guest

0.10 Dollars($)

Post subject: Appraisal of Home

I am 73 years old and single. I will soon buy a condominium for about $110,000 cash. This will be my primary residence. My realtor recommends I have the property independently appraised before making an offer. Q. When can I apply for a reverse-mortgage once I own this property? Q. Will that appraisal be acceptable when I apply for a Home Equity Conversion Mortgage (HECM or HUD Reverse-mortgage)? Q. For how long will that appraisal be acceptable to HUD? Thank you.

raymond
raymond

Community Experts

Joined: 03 Jul 2009
Posts: 690
Location: Orange County, CA

110.73 Dollars($)

Post subject:

Q. When can I apply for a reverse-mortgage once I own this property? Immediately, but it makes more sense to purchase the home with a Reverse Mortgage instead. You'd contribute $48,635.00 to the transaction and the Reverse Mortgage would contribute the other $61,365.00 Q. Will that appraisal be acceptable when I apply for a Home Equity Conversion Mortgage (HECM or HUD Reverse-mortgage)? No. It'll be a different transaction, so you'd need a new Appraisal. However, you'd only need one Appraisal if you purchased the home with a HECM. Also, since you're buying a condo, check with the HOA first and confirm they're approved for FHA financing. It's really important. _________________ Raymond www.ReverseMortgageCounselor.com


Page 1 of 1

Highlights

Helpful References
• Mortgage Guide
• Mortgage Terms
• Mortgage News
• Book Center
• Shop and Compare lenders
• 30 Yr. Fixed Vs. 5/1 ARM

Calculators [View all]
• Are you eligible for loan?
• How much you can afford?
• Calculate monthly payment
• Calculate APR

Financial Tools
• Credit Repair Tool

• Mortgage Planner
• Simple Budgeting Tool

Our Community
• MortgageFit Blog
• Community Professionals
• Community Rewards
• Introduce yourself
• Website tools

Community Rewards
• Five simple ways to earn money with the Mortgage Community.

Explore the lender near you