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?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.
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:
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:
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. |
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