Category Archives: Uncategorized

Home Equity Conversion Mortgage (HECM)

Posted on by

The Home Equity Conversion Mortgage (HECM), also known as a Reverse Mortgage) program enables older homeowners to withdraw some of the equity in their home in the form of monthly payments for life or a fixed term, or in a lump sum, or through a line of credit.

In addition, the HECM-Reverse Mortgage- mortgage can be used to purchase a primary home when the borrower is 62 years of age or older and is able to use cash in hand, moneyfrom the sale of assets or money from an allowable FHA funding source to pay the difference between the reverse mortgage and the sales price plus closing costs for the property.

Purpose: To be eligible for a HECM mortgage, current homeowners must be 62 years of age or older, own their home outright or have a low mortgage balance that can be paid off at closing with proceeds from the reverse mortgage. Homeowners can only have one HECM at any one time and the home must be their principal residence. In addition, the HECM can be used to purchase a primary home if the borrower is able to pay the difference between the HECM and the sales price and closing costs for the property.

The program requires that borrowers receive free or low cost reverse mortgage counseling from a HUD approved reverse mortgage counselor. Before the loan application can be processed and fees charged to the borrower, lenders must receive a signed and dated Certificate of HECM Counseling.

Two mortgage insurancepremiums are collected to pay for the HECM: an upfront premium and an annual premium (which equals 1.25 percent per year of the mortgage balance). FHA insures HECM loans to protect lenders against loss if amounts withdrawn exceed remaining equity when the property is sold. FHA insurance also ensures payment to the borrowers in the event the lender is unable or unwilling to make payments. Borrowers have a choice of two upfront premiums. The HECM Standard option has a 2 percent MIP and the HECM Saver option has a .01 percent MIP.

A lender can charge a loan origination fee of up to $2,500 if the home’s appraised value is less than $125,000. If the home is valued at more than $125,000, lenders can charge 2% of the first $200,000 of the home’s value plus 1% of the amount over $200,000. HECM origination fees are capped at $6,000.

Type of Assistance: The total amount a homeowner may receive through a HECM is the principal limit, which is calculated by a formula that include the age of the youngest borrower, the interest rate, the value of the home or sales price and the upfront MIP option.

Borrowers may choose one of five payment options: (1) tenure, which gives the borrower a monthly payment from the lender for as long as the borrower lives and continues to occupy the home as a principal residence; (2) term, which gives the borrower monthly payments for a fixed period selected by the borrower; (3) line of credit, which allows the borrower to make withdrawals up to a maximum amount, at times and in amounts of the borrower’s choosing; (4) modified tenure, which combines the tenure option with a line of credit; and (5) modified term, which combines the term option with a line of credit.

The borrower remains the owner of the home and may sell it and move at any time, keeping the sales proceeds that exceed the mortgage balance. A borrower cannot be forced to sell the home to pay off the mortgage, even if the mortgage balance grows to exceed the value of the property, unless they fail to perform an obligation of the mortgage. When the loan must be repaid, if the outstanding balance exceeds the value of the property, the borrower (or the heirs) will owe no more than the value of the property, if they sell the property to repay the loan.

A lender can charge a loan origination fee of up to $2,500 if the home’s appraised value is less than $125,000. If the home is valued at more than $125,000, lenders can charge 2% of the first $200,000 of the home’s value plus 1% of the amount over $200,000. HECM origination fees are capped at $6,000.

Eligible Customers: To be eligible for HECM, a homeowner must (1) be 62 years of age or older, (2) have a low outstanding mortgage balance or own their home free and clear, and (3) have received HUD approved reverse mortgage counseling to learn about the program.

An eligible property must be a principal residence. It can be a single family residence, a one to four -unit building with one unit occupied by the borrower, a manufactured home built after June 15, 1976, a unit in an FHA approved condominium project, or a unit in a planned unit development. The property must meet FHA standards, but the owner can pay for repairs using the reverse mortgage.

Application: Borrowers who meet the eligibility criteria above can apply through an FHA HECM approved lending institution. Borrowers can locate FHA approved lenders through HUD’s searchable listing.

Reverse Mortgage Eligibility

Posted on by

One of the key questions that most folks have is….Am I Eligible? Good question, so here are some thoughts:

In general, to be eligible for a reverse mortgage the youngest homeowner must be 62 years old or older and have sufficient home equity.

Determining whether or not there is sufficient equity in the home is an FHA calculation that takes into account:

 

Current interest rate

Whether the rate will be variable or fixed

Age of the youngest homeowner

FHA lending limits

Appraised value of the home

You can use the online reverse mortgage calculator to find out if you have sufficient equity and what the loan principal limit would be.

Things that generally do not affect eligibility for a reverse mortgage:

Frequently asked questions:

If a homeowner is not 62 but they are permanently disabled, can they qualify?
No. The FHA use age as a criteria to determine reverse mortgage eligibility and makes no exceptions for disability or Social Security status.
Can someone qualify if they have a mortgage?
Yes. Where there is sufficient equity a majority of people who take out a reverse mortgage use it to pay off their existing mortgage so they can stop making monthly mortgage payments.
Do all 62-year olds who own their home qualify?
No. Some homeowners who want to get a reverse mortgage are not eligible because they don’t have enough equity built up in their home. The younger the homeowner is, the more equity they need to have to qualify. Also, some types of homes are not eligible.
What happens if there isn’t enough home equity to qualify?
This is called a “shortfall.” This means that the reverse mortgage would not provide enough money to pay off the existing mortgage on the home — it is coming up “short.” In this situation, some homeowners may choose to make up the difference by paying down the balance on their mortgage by the amount of the shortfall so that they can qualify for the reverse mortgage. However, most people who want a reverse mortgage and have a shortfall don’t have enough money to do this.
This kinds of gives us an overview of the nature of the Reverse Mortgage.

 

 

Thoughts from Mike Ferrier

Posted on by

My good friend, Mike Ferrier, was in the role of Abraham Lincoln at the California Vets Cemetary in Igo, CA…as part of the Memorial Day celebrations in the North State. Earlier today he sent me the following, and it has some great thoughts. Here it is:

“Giving Your All”

“Always bear in mind that your own resolution to succeed is more important than any other one thing.”  ~ Abraham Lincoln ~

I think very highly of President Lincoln and today I will be him.  It is Memorial Day.  At 5:55 this afternoon, I will don the clothes, hat and beard Lincoln was known to wear and present the Gettysburg Address at the Northern California Veterans Cemetery in Igo.  My qualifications are that I am the same height, build and age he was when he did the address 158 years ago.  I am blessed with a commanding voice.  I wish I had the knowledge, creativity and fortitude to go with it.  All I can do is my best.

Resolution to succeed…that is the deciding factor. I saw two examples of that this week.  The first is my son, Chris. Last Saturday he ran 50 miles, on dirt, in just over 12 hours in the arid mountains near Bishop.  He told me of the feeling he had when he saw a sign that said. “You have completed a marathon, only 24 miles to go.” Resolution kept him going. 

The second was a friend who has lived her life in the shadows of despair, poor health and abuse. She cast off the darkness and shared her experiences at a microphone, in a spotlight, for a large crowd of people. Her fear was massive, but she walked up there and for 10 minutes held the moment in her shaking hands and gave those in front of her a blessing.  Despair and abuse no longer have a place in her home.

These are two vastly different people.  They each had their mountains to climb and the resolve to see the view from the top.  How is the view from where you are?  You decide what it can and will be. Resolve is something you make yourself and there is no limit to the supply of material.

Is anything holding you back?