Home Equity Conversion Mortgages

posted in: Mortgages

One type of reverse mortgage is the home equity conversion type. Under the rules, you must meet with a HECM counselor because there are eligibility requirements that must be met. The loan officers at 7th Level Mortgage will provide you with the information you need before considering this option. Both the property and you, the borrower must meet all the requirements of the program. The lender must be FHA-approved. What follows are the requirements for the program.

  • Borrower:
    • Be 62 years old or older
    • Own the property free and clear or have substantial equity in the property.
    • You must live on the property.
    • Not be in default or delinquent on any federal debts.
    • You must demonstrate the ability to pay for property taxes, insurance, or homeowner’s insurance charges.
    • You must participate in a consumer information session given by a third-party HUD-approved HECM counselor.
  • Property:

All of the eligible properties must meet ALL FHA property standards and flood requirements.

    • Single-family home or 2 to 4 unit properties. Two to four-unit properties are acceptable as long as the borrower lives in one of the units.
    • For condominiums the standard is that the project must be HUD-approved.
    • Individual Condominium Units that meet FHA Single Unit Approved requirements.
    • Manufactured homes that meet FHA requirements.
  • Financial Requirements:
    • Income, assets, monthly living expenses, and credit history will be verified.
    • Timely payment of real estate taxes, hazard, and flood insurance will be verified.
  • Payment Plans:
    • For ARMs the options are:
    • Tenure-equal monthly payments but at least one borrower lives in the property.
    • Term-equal monthly payments for a fixed amount of time.
    • Line of Credit-unscheduled payments or installments at times and amount of your choosing until the line of credit is exhausted.
    • Modified Tenure-combination of a line of credit and scheduled monthly payments as long as you are living in the home.
    • Modified Term-combination of a line of credit and monthly payments for a fixed amount of time.

For a fixed-rate mortgage, you will receive a single lump-sum payment.

With the recent increase in home values, you may be able to draw out more equity. The amount is based on the age of the youngest borrower or eligible non-borrowing spouse, the current interest rate, and the lesser of the appraised value, the HECM FHA mortgage limit of $822,375, or the sales price if you are purchasing the home. What follows is a list of the HECM costs:

  • MIP: You will incur costs for FHA mortgage insurance. This insurance guarantees you will be paid the loan advances. This can be financed into the loan amount. The initial MIP is 2% of the loan amount. Annually, you will incur a.5% MIP fee on the outstanding balance. The loan officer at 7th Level Mortgage can discuss the draws you are receiving and are scheduled to receive.
  • Third Parties: There will also be charges for appraisal, title search, surveys, inspections, recording fees, mortgage taxes, and credit checks.
  • Origination Fees: This is payable to the lender to compensate him/her for processing the loan. The lender can charge the greater of $2,500 or 2% of the first $200,000 of your home’s value plus 1% of the amount greater than $200,000. The cap on these fees is $6,000.
  • Servicing Fees: All mortgages must be serviced. Some of these charges are to ensure that your property taxes, HOA dues, and insurance premiums are up to date. The servicing fee for a fixed-rate mortgage or an annually adjusting mortgage is no more than $30.00. For mortgages that adjust monthly, that fee cannot exceed more than $35.00.

With an aging baby boomer generation that has retired or will be retiring soon, a HECM could potentially make the difference for people who, due to age, have more medical costs, children, and grand children to consider as far as their futures are concerned. Most people do not want to leave their homes because the children have left or because the burdens of medical debt and mortgage payments force a choice to be made by these folks. Consider a HECM if you find yourself in a situation like I just described. The loan officers at 7th Level Mortgage will be happy to discuss their plans and options with you.