HECM – Home Equity Conversion Mortgage
What You Must Be Aware Of Regarding Getting A HECM Including, Options, Costs, Requirements and Getting The Best Deal
The HECM program makes it possible for elderly 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. This reverse mortgage loan program allows families to remain in their home while using a portion of its equity. The total income that an owner will get through the program is the maximum claim amount, which is calculated with a formula including the age of the owner, the interest rate, and the value of the home. The borrower remains the owner of the home and may sell it and move anytime, keeping the sales proceeds that exceed the mortgage balance. No repayment is needed until the borrower moves, sells, or dies.
How the HECM Program Works
There are plenty of factors to consider before deciding if receiving a HECM loan fits your needs. To help in this process, you must meet with a HECM counselor to go over program eligibility requirements, financial implications and alternatives to getting a HECM reverse mortgage and repaying the loan. Counselors will also go over provisions for the mortgage becoming due and payable. Upon the completion of HECM counseling, you should be capable of making a completely independent, informed decision of whether this product will meet your particular needs. You can search online for a HECM counselor or call (800) 569-4287 toll-free.
There is borrower and \property eligibility requirements that must be met. You can use the listing below to see if you qualify. In the event you meet the eligibility criteria, you can complete a reverse mortgage application by contacting an FHA-approved lender. You can search online for a FHA-approved lender or you can request the HECM counselor to provide you with a list. The mortgage company will talk about other specifications of the HECM program, such as first year payment limitations, available payment options, the loan approval process, and repayment terms.
HECM Borrower Requirements Living in
You must:
- Be 62 years of age or older
- Own the house outright or paid-down a large amount
- Occupy the house as your principal residence
- Not be delinquent on any federal debt
- Have financial resources to continue for making timely payment of ongoing property charges such as property taxes, insurance and Homeowner Association fees, etc.
- Participate in a consumer information session given by a HUD- approved HECM counselor
Property Requirements with the HECM
The following eligible property types will need to meet all FHA property standards and flood requirements:
Single family home or 2-4 unit home with one unit occupied by the borrower
HUD-approved condo project
Manufactured home that satisfies FHA requirements
HECM Financial Requirements of Borrowers
Income, assets, monthly living expenses, and credit standing are going to be verified.
Timely payment of real estate taxes, hazard and flood insurance premiums are going to be confirmed
For adjustable interest rate mortgages, you can select one of the following payment plans:
Tenure – equal monthly payments provided that at least one borrower lives and continues to occupy the property as a principal residence.
Term – equal monthly payments for a fixed period of months selected.
Line of Credit – unscheduled payments or in installments, at times and in an amount of your choosing up until credit line is exhausted.
Modified Tenure – combination of line of credit and scheduled monthly payments for as long as you remain in the home.
Modified Term – combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.
For fixed interest rate home loans, you will receive the Single Disbursement Lump Sum payment plan.
HECM Mortgage Amounts Are Based On the Following
The amount you may borrow would depend on:
Age of the youngest borrower or eligible non-borrowing spouse
Current interest rates; and
Lesser of:
appraised value;
the HECM FHA mortgage limit of $679,650; or
the sales price (only applicable to HECM for Purchase)
Whether there is more than one borrower and no eligible non-borrowing spouse, the age of the youngest borrower must be used to determine the amount you are able to borrow.
HECM Loan Costs
You can pay for most of the costs of a HECM by financing them and having them paid from your proceeds of the loan. Financing the costs means you don’t need to to pay for them out of your pocket. However, financing the costs lowers the net loan amount available to you.
The HECM loan includes several charges and fees, which includes: 1) mortgage insurance premiums (initial and annual) 2) third party charges 3) origination fee 4) interest and 5) servicing fees. The lender will discuss which fees and charges are mandatory.
You will be charged an initial mortgage insurance premium (MIP) at closing. The initial MIP will be 2%. Over the life of the loan, you will be charged an annual MIP that equals 0.5% of the outstanding mortgage balance.
Mortgage Insurance Premium
You will incur a cost for FHA mortgage insurance. The mortgage insurance guarantees that you get expected loan advances. You can finance the mortgage insurance premium (MIP) as part of your loan.
Third Party Charges
Closing costs from third parties can include an appraisal, title search and insurance, surveys, inspections, recording fees, mortgage taxes, credit checks and other fees.
Origination Fee
You will pay an origination fee to compensate the financial institution for processing your HECM loan. A lender can charge the higher of $2,500 or 2% of the first $200,000 of your home’s value plus 1% of the amount over $200,000. HECM origination fees are capped at $6,000.
Servicing Fee
Loan companiesor their agents provide servicing through the life of the HECM. Servicing includes sending you account statements, disbursing loan proceeds and making sure that you satisfy loan requirements which include paying property taxes and hazard insurance premium. Lenders may charge a monthly servicing fee of no more than $30 if the loan has an annually adjusting interest rate or has a fixed interest rate. The lender may charge a monthly servicing fee of no more than $35 if the interest rate adjusts monthly. At loan closing, the lender sets aside the servicing fee and deducts the fee from your available funds. Each month the monthly servicing fee is added to your loan balance. Lenders may also choose to include the servicing fee in the mortgage interest rate.
Shopping for a Home Equity Conversion Mortgage
If you’re considering getting a HECM, shop around. Determine which type of reverse mortgage loan could be right for you. That might be determined by what you would like to do with the cash. Do a comparison of the options, terms, and fees from several HECM loan providers. Learn as much as you are able to about reverse mortgages before you talk with a counselor or mortgage company. And ask lots of questions to ensure a HECM will work for you – and that you’re getting the right kind for you.
Here are some things to consider:
Are you interested in a HECM loan to pay for home repairs or property taxes? If that’s the case, find out if you qualify for any low cost loans in your Corvallis. Employees at the Agency on Aging might know about the programs in your area. Find the closest agency on aging at eldercare.gov, or call 1-800-677-1116. Ask about “loan or grant programs for home repairs or improvements,” or “property tax deferral” or “property tax postponement” programs, and the ways to apply.
Are you living in a high value property? You may be capable of borrow more money with a proprietary reverse mortgage. But the more you borrow, the bigger the fees you will pay. Additionally you might take into consideration a HECM loan. A HECM counselor or a lender in Corvallis can help you evaluate these kinds of loans side by side, to see what you’ll get – as well as what it costs.
Look at fees and rates. This bears repeating: research options and rates and look at the costs of the HECM loans available to you. While the mortgage insurance premium is usually the same amongst numerous lenders, the majority of loan costs – including origination fees, interest rates, closing costs, and servicing fees – range between loan companies.
Understand total costs and loan repayment. Ask a counselor or lender to explain the Total Annual Loan Cost (TALC) rates: they reveal the projected annual average cost of a HECM, which include all the itemized costs. And, no matter what kind of HECM you’re thinking about in Corvallis, recognize all the reasons why your loan may need to be repaid before you were planning on it.
What You Need To Know About HECM Loans
If you get a HECM of any kind, you receive a loan in which you borrow from the equity in your house. You retain the title to your home. Instead of paying monthly mortgage payments, though, you get an advance on part of your home equity. The money you will get usually is not taxable, and it usually won’t affect your Social Security or Medicare benefits. Once the final surviving borrower dies, sells the home, or no longer resides in the home as a principal residence, the HECM must be repaid. In certain situations, a non-borrowing spouse may be able to continue to live in the home. Here are some facts to consider about home equity conversion mortgages in Corvallis OR:
You owe more over time. As you get money through your home equity conversion mortgage, interest is added onto the balance you owe each month. This means the amount you owe increases as the interest on your loan accumulates over time.
Interest rates can change over time. Nearly all HECM’s have variable interest rates, that are linked with a financial index and adjust with the market. Variable rate loans tend to provide you with more choices on how you get your money through the HECM loan. Several reverse mortgages – mostly HECMs – offer fixed interest rates, but they tend to require you to take your loan as a lump sum at closing. Typically, the amount you can borrow is less than you have access to with a variable rate loan.
Interest is not tax deductible each year. Interest on reverse mortgages is not deductible on income tax returns – until the loan is paid off, either partially or in full.
You must pay other costs in connection with your home. In a HECM, you retain the title to your home. This means you are responsible for property taxes, insurance, utilities, fuel, maintenance, as well as other expenses. And, if you don’t pay your property taxes, keep homeowner’s insurance, or take care of your home, the lender might require you to repay your loan. A financial assessment is required when you apply for the mortgage. Because of this, your lender may require a “set-aside” amount to pay your taxes and insurance during the loan. The “set-aside” reduces the amount of funds you can get in payments. You are still responsible for maintaining your home.
What happens to your spouse? With HECM loans, if you signed the loan paperwork and your spouse didn’t, in certain situations, your spouse may continue to reside in the home even after you pass on if he or she pays taxes and insurance, and continues to take care of the property. But your spouse will stop receiving money from the HECM, since he or she wasn’t part of the loan agreement.
What can you leave to your heirs? HECM’s may use up the equity in your home, which means fewer assets for you and your beneficiaries. Most reverse mortgages have something called a “non-recourse” clause. Which means that you, or your estate, can’t owe more than the value of your home once the loan becomes due and the home is sold. With a HECM, generally, should you or your heirs need to pay off the loan and keep the home instead of sell it, you would not have to pay more than the appraised value of the home.
[hide][ssvideo keyword=”what is a hecm” title=””][/hide]
[hide][ssplaces location=”Corvallis OR” keyword=”loans” limit=”10″][/hide]
[hide][ssvideo keyword=”home equity conversion mortgage” title=””][/hide]